Should high net-worth individuals purchase long-term care insurance?

In the past long-term care insurance has been purchased primarily by middle and upper-middle class people. The wealthy tend to ‘self-fund’ their long-term care needs with extra assets which would otherwise be included in their estates. But now, with long-term care costs rising dramatically and over 40% of Americans 65 and older needing some sort of long term care, better planning is needed to protect assets.* If we give further consideration to increasing life-spans and the diminishing effect the recession has had on many households in the $2-5M net worth range, it may make sense for more wealthy individuals to start purchasing long-term care insurance as both a hedge against these risks and a protective measure for future giving ability.

As a refresher, long-term care insurance helps elderly individuals who are unable to perform certain daily activities pay for professional assistance if and when needed. This could be nursing care, an assisted living facility, or home care. The average cost of home care in New York is at an all-time high right now of $398 per day (Genworth Financial: 2008 Cost of Care Survey). Even this figure represents an average and not the very best accommodations which can reach as high as $500/day. Wealthy individuals tend to want the best home care and/or the best assisted living facilities which can easily surpass $100,000/year.
Even with a brief, 3-year stay in a nursing facility, high net-worth individuals may be looking at a $300,000 expenditure. Even if this is tolerable, the real cost of long-term care is not the actual cost, but the opportunity cost. In order to pay out of pocket, individuals will have to hold on to assets in their accounts. These assets, which would have been used to pay for long-term care insurance years earlier, are now stuck in the individual’s estate, which are subject to the estate tax. As the years go on, it is increasingly difficult for an individual to transfer assets out of their estate. With an estate tax of up to 55%, it may be beneficial to pay the insurance premiums and transfer the extra money out of your estate at an earlier date.
Fortunately for consumers, long-term care providers have been innovating on products and there are now more and less costly ways of purchasing long-term care insurance. Many policies now have an option to return a portion of the premium if not used. Depending on how much you’re willing to pay for the insurance now, the return of the premium option ranges from just a small portion, to the entire premium.
If you have questions about your need for long-term care insurance, feel free to contact me or your own financial advisor.
Russell Bailyn

Wealth Manager
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
*U.S. Department of Health and Human Services
Special thanks to Brian Schuman for his contributions on this article
Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

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