James Bruyette has an interesting take on use of long-term care insurance (LTCI) planning.
I am not qualified to know whether he’s right or wrong, but it just seems to me that one point is that anyone really interested in getting LTCI referrals from financial planners probably needs to have an informed opinion about this sort of analysis, and that another point is that it hints at a serious problem with the fabric of Western civilization as we know it.
Bruyette, a planner at Sullivan Bruyette Speros & Blayney, recently appeared in Washington at a symposium on “health and wealth” organized by Lincoln Financial Group (NYSE:LNC) and Barron’s.
Bruyette suggested at the panel discussion that a 50-year-old who is thinking about buying LTCI coverage probably needs about $1.5 million to $2 million in net worth to spend, say, $400 per month on a policy that would pay $200 to $300 per day for four to five years, according to a summary of the event provided by Lincoln.
Bruyette suggested that clients with more than about $3.5 million in net worth could think of LTCI as a tool for protecting estates against depletion later in life.
At first, frankly, I thought that someone at Lincoln had goofed, and that Bruyette must have said that a family needs a net worth of $1.5 million to self-insure against the risk of needing long-term care (LTC) services.
But Lincoln put me in touch with Bruyette, and, hey, sorry, I was wrong, The folks at Lincoln wrote down what Bruyette said completely accurately.
Via e-mail, Bruyette gave the example of a hypothetical 50-year-old couple with a $1 million net worth.
If that family spent $400 per spouse per month on LTCI coverage for 35 years, that means it would end up paying $252,000 in premiums, and that the present value of those payments would be about $150,000 to $200,000.
“If you were that couple, would you allocate 15% to 20% of your net worth to cover a possible health situation 35 years down the road, knowing that there is debatably a 50 percent chance it will not be used?” Bruyette asked. ” What would they have to forego in their retirement lives to free up this kind of cash for LTC protection? In my experience, many clients who take a rational look at these numbers conclude that they simply can’t afford to cover the whole need here, and either opt for lower amounts of coverage or no LTC at all. Given their priorities, they conclude that they can’t afford it.”
Bruyette emphasized that he is not saying that buying LTCI is a poor use of money, or that people should avoid buying LTCI coverage.