Making Long Term Care Insurance Part of Your Asset Allocation

Written by Firethorn Wealth Partners

April 16, 2021

We have all heard the phrase “Don’t put all of your eggs in one basket.” That concept equates to diversification in the investment world. The most common way investors implement diversification is by allocating their portfolio across stocks, bonds, and cash. There are many more options outside of these three broad asset classes. Recent changes and new products in the long-term care industry make long-term care insurance an asset class unto itself. LTC might be worth considering as part of your financial portfolio and diversification strategy.

Almost 70% of adults age 65 and older will need some form of long-term care. Most people underestimate the cost of such an event and its potential to wreak havoc on a retirement income plan. An extended period of long-term care costs can expose an uninsured retiree to as much as $1 million in costs and, possibly, even more. In this case, the loss due to high health expenses can have a devastating impact on legacy values and income security.

Unsurprisingly, long-term care insurance provides the maximum value when health expenses are high. A retiree holding a long-term care insurance policy will be exposed to approximately one-third of the out-of-pocket expenses and premiums vs. the uninsured retiree. With long-term care insurance, like all insurance products, a retiree trades a premium expense for protection against a loss.

These statistics alone are convincing, but new asset based programs take much of the bite out of planning for this risk. New policies allow investors to purchase insurance that solves the major objections to traditional pay as you go long-term care insurance.

  1. The premiums can be refunded at the client’s discretion (with some restrictions).
  2. The client’s heirs will receive at least the amount invested as a life insurance death benefit if the client never files a claim for long-term care.
  3. Payments for expenses are available without a waiting period.
  4. Costs will not increase or the benefits reduced once the premiums are paid.

The articles in this newsletter highlight the need for preparing for a long-term care event and a brief discussion of the new policy types available to consumers. We are licensed and prepared to assist you in determining whether your retirement income plan would benefit from adding this asset to your diversified portfolio.