Paying for Long-Term Care on Your Own

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Paying for Long-Term Care on Your Own

Partnership programs for LTC that promote insurance

Four states—California, New York, Connecticut, and Indiana—were originally authorized to have a "partnership for long-term care" program to encourage residents to buy long-term care (LTC) insurance coverage. State partnerships for long-term care offer a degree of asset protection to state residents who purchase limited LTC insurance but eventually need Medicaid assistance anyway. This avoids the need for someone to impoverish himself or herself in order to qualify for long-term care Medicaid benefits after exhausting his or her private long-term care insurance benefits. The law now permits every state to have such a program. Several other states have now adopted partnership programs, and more are expected to follow suit. Check with your state insurance commissioner for details on the partnership program if your state offers one.

Pay as you go—self-insurance

Long-term care insurance may be an unnecessary expense for those who can afford to pay their own long-term care expenses, although some of these people purchase coverage as an extra measure of protection. Persons who pay their own expenses are said to be self-insured. In order to determine whether self-insurance is more cost-effective than buying a policy, you must weigh the future cost of premiums against potential future long-term care costs and policy benefits.

For example, based upon your family history, you estimate that by age 75, you will need about $250,000, adjusted for inflation, to cover your long-term care needs. You save and invest regularly and expect to have over $250,000 available exclusively for your long-term care needs by age 75. Alternatively, you could invest in an LTC policy that would provide accumulated lifetime benefits equal to $250,000 by diverting some of your savings and investments to the premiums. On the one hand, you will have $250,000 you may or may not need for long-term care. On the other hand, you won’t accumulate the $250,000 investment, but you will have a policy that may or may not be used for LTC benefits. In this case, it might make better sense to self-insure.

Keep long-term care in your financial planning

Deciding how to pay for long-term care should be part of the financial planning process. Financial planners, however, generally agree that it would be difficult to invest a sum equal to a long-term care premium that would generate the same potential benefits simply due to the nature of insurance and pooling risk.