A Sensible Approach to Paying for Long-Term Care

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A Sensible Approach to Paying for Long-Term Care

While most of us could not set aside a self-insurance fund today adequate to pay out of pocket for several years of LTC costs, there is a realistic alternative for many—create a dedicated source of long-term care premium payments.

Establish an account with the sole purpose of generating enough interest or dividend income each year to pay the LTC premium. Much less money is needed to do this at an early age when premiums are relatively low, of course.

During this period (before about age 55 or so), an investment of manageable size would be sufficient for many people, even in a low interest rate environment. The fund must be dedicated to premium payments, however. The earmarking is essential to ensure you can keep the policy in force throughout a (hopefully) long life.

For example

For example, $75,000 earning just 2% yields $1,500 annually. That would probably pay all or most of the premium for two or three years of good coverage for a healthy 40- to 50-year-old. Middle-aged folks without this level of assets available already could, of course, try to accumulate it through a concerted savings plan over the next few years.

Someone who waited till age 60 or 65 would have to dedicate a much larger sum to yield enough to pay his premium. But even a reserve of $150,000–$250,000 could be attainable for many people at that point in life. After all, the investment does not have to be new money.

Consider professional help

Consulting with a financial planner is a good idea for exploring ways to "finance" a long-term care premium. There are many possibilities, and the one that works best for you might not work for someone else. Consult a financial advisor before going forward with any re-allocation of assets.

LTC insurance has gotten a lot better over the past few years. It has taken its place among the other financial planning tools for retirement and estate planning.