What's Happening?
A 70-year-old couple with a $3.4 million portfolio has decided to drop their long-term care (LTC) insurance policies in favor of self-funding a $400,000 reserve. This decision comes after facing a 27% increase in their LTC insurance premiums, a trend
that has been common since 2010. The couple, who have been paying $10,600 annually for their policies over the past 12 years, chose to allocate funds from their brokerage account into a reserve balanced between stocks and bonds. This reserve is expected to grow to approximately $832,000 by the time they reach 85, the median age for a first claim. The couple's wealth is distributed across various accounts, including a traditional IRA, a Roth IRA, a brokerage account, and cash, allowing them to absorb potential care costs without insurance.
Why It's Important?
This decision highlights a growing trend among high-net-worth individuals to self-insure against long-term care costs due to rising insurance premiums. For households with significant assets, self-funding can be a viable alternative to traditional LTC insurance, which often comes with increasing costs and the risk of unused benefits. By setting aside a dedicated reserve, individuals can potentially save money and retain control over their assets, which can be passed on to heirs if not used for care. This approach also reflects broader financial planning strategies that prioritize flexibility and asset preservation over traditional insurance models.
What's Next?
The couple's decision to self-fund their long-term care needs may prompt other high-net-worth individuals to reconsider their insurance strategies, especially as premium hikes continue. Financial advisors may increasingly recommend self-funding as a viable option for those with sufficient assets. Additionally, the couple plans to periodically reassess their strategy every three to five years to ensure it aligns with their financial situation and potential health changes. This ongoing evaluation will help them adapt to any shifts in care costs or personal circumstances.
Beyond the Headlines
The move towards self-funding long-term care costs raises questions about the future of the LTC insurance industry, particularly as more affluent individuals opt out of traditional policies. This trend could lead to changes in how insurance companies structure their products and premiums. Furthermore, it underscores the importance of personalized financial planning that considers individual wealth, health, and risk tolerance. As more people explore self-funding, there may be increased demand for financial products that offer flexibility and asset protection without the constraints of traditional insurance.
