'Self-insuring'

Q. When I meet with a couple who are considering self-insuring the long-term care risk, how can I explain to them that this may not be the best solution?

A. Overcoming the self-insuring objection can be challenging. That’s why I really liked the approach — shared by Beth Ludden, vice president, long term care insurance, at Genworth — that clearly illustrates the impact on a client’s portfolio from these unexpected expenses. 

The concept is based on a couple who retire at age 65 with $2 million in assets. They plan to use the growth from their portfolio to cover their living expenses and still leave a sizeable inheritance to their children.

Here’s how Beth explains the concept:

• In 2014, the couple retires with a $2 million portfolio.
• To cover living and lifestyle expenses, they withdraw $100,000 annually. This amount is increased by 3 percent annually for inflation.
• The stock market continues to fluctuates, but the couple’s investments are pretty stable. 
• Then, in 2029 – year 15 – the husband has a LTC event (for example, a stroke or a diagnosis of Alzheimer’s disease). He and his wife are determined that he will remain at home as long as possible.
• The husband receives 44 hours of home care each week. The cost for the one shift a day is $99,375 per year.
• Year 2 – 2030 – He has gotten worse, so he is now getting home health care for two shifts a day or 88 hours a week. The annual cost is $189,788.
• Year 3 – 2031 – His condition continues to deteriorate so he now needs 24-hour- a-day home care. The annual cost is $380,438.
• Year 4 – 2032 – His wife is now having health problems of her own, so the family decides to move him to a nursing home. The annual cost of a private room in a nursing home is $195,008.

Total amount spent for the four years of care – $855,609.