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Long-term Care: Planning to Self Insure

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I find that the farther away an event is, the more willing people are to accept risk now in hopes of dealing with it later. But when later comes…

Why else would a 45 year old man keep telling himself, “I’ll do some retirement planning…when the kids are out of school.”

The same is true for many a 60 year old who says, “I plan to self-insure for long-term care,” when they may know very little about the risk they are now so blithely accepting.

Long-term care is a risk issue. And like so many risk issues, the trap lies at both extremes: one extreme seeks to avoid all costs of protection (“I’ll self insure…”). Too often this is not the least costly, but (eventually) the most costly option.

The other extreme is trying to avoid all risks. This might be the person who buys the most long-term care insurance available, then hoards all the rest of their money and worries non-stop about one day spending any of it on their own long-term care.

Given the above, I’ve got three suggestions:

1. Take a second look at long-term care insurance. These days it can be funded via a premium method (like health insurance) or by deposit method (by funding a life insurance policy or an annuity, which also provides long-term care insurance). Ask a financial planner to calculate your net worth 20 years from now with and without the long-term care insurance. You may find it makes little difference to your net worth if you stay well, but all the difference in the world if you require long-term care. Be sure to discuss long-term care insurance with a knowledgeable licensed agent.

2. Take care of yourself. I am amazed how many people ignore this one. If you are a senior adult and you are not eating well and regularly exercising (under a doctor’s supervision, of course), I think you are asking for trouble. It’s never too late to take a step in the right direction…until you can no longer take that step. Taking care of your body may be the best investment you ever make.

3. Take care of your money. If you are determined to self-insure, that means you are your own insurance company. So take care of your policy holder’s money. You can do so by controlling your expenses with a spending plan (otherwise known as a budget) and by making sure your money is being well managed. Most of us don’t have enough wealth to afford sloppy money management. Find someone you trust and who offers you a sensible plan for how to manage not only in good times, but in bad.

There some people for whom long-term care insurance simply does not make sense – these people are ether quite poor or very wealthy.

For the rest of us, it’s probably something that deserves a closer look.

Byron is a Certified Financial Planner and Managing Director of the Planning Group at Argent Advisors, Inc.
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