Ask an Advisor: We Have $3.7 Million in Assets. Do We ‘Bite the Bullet' and Buy Long-Term Care Insurance?

I’m 63 and have been on Social Security disability since 2008. My wife, also 63, stays home to care for me. We're in poor health and were denied or quoted high rates for long-term care insurance in our mid-50s, with recent quotes as high as $1,850 a month for me and $2,750 for her.

We have $650,000 in my IRA, a $404,000 401(k) for my wife, $1.97 million in stocks and $300,000 in cash saved for a house that’s doing absolutely nothing. We also hold $280,000 in gold and silver, as well as $91,500 in a Roth IRA. Should we buy long-term care insurance now, and if so, how can we find affordable rates? My main concern is losing our assets to medical expenses.

– Everett

In a vacuum given your circumstances, “biting the bullet” and purchasing long-term care (LTC) insurance for you and/or your wife seems to make sense. However, there are other planning-related factors you should consider before moving forward with a policy (or policies). First, we'll discuss a few important items that will illuminate the tradeoff between buying LTC insurance and self-insuring. Next, we'll review the quotes you've received and why, despite the “sticker shock” you might find LTC insurance to be a sound use of money. Lastly, we'll offer some additional, ancillary planning ideas you can think about pursuing in addition to the insurance decision.

Whether you’re planning for long-term care or need advice managing your assets, connect with a financial advisor and see how they can potentially help.

Consider Your Long-Term Planning Goals

Your concern about losing the $3.7 million you have worked so hard to build to an unfortunate health event is valid and rightly top-of-mind if health is a primary focus for you. Of course, this is what LTC insurance is there for! But consider going a step deeper – why do you want to protect the assets you have grown by actively saving and investing over your lifetime ? Thinking through this for yourselves will help to refine the insurance equation.

Maybe you have children, grandchildren and/or other loved ones to whom you would like to leave an inheritance. Perhaps there's an organization, cause or mission you would like to support after your passing. If estate planning is part of your calculus, then protecting your assets becomes even more important and you should strongly consider “biting the bullet.”

In addition to estate planning goals, think about your retirement objectives. What do you expect to spend annually over the duration of your retirement? This might include a down payment and mortgage for the home you've been hoping to buy.

Reviewing your anticipated all-in expenses in retirement – in conjunction with your expected annual investment income and other earnings – will help you determine how much you need to withdraw from your income sources and asset base each year. Furthermore, this will help you understand whether you can self-insure by using your assets and income to cover any LTC-related costs. If you don't plan on leaving a legacy, and if other retirement expenses are reasonably low, then you could feel more confident not having LTC in place since you have amassed a sizable nest egg. (A financial advisor can help you set goals and prioritize your needs in retirement.)

Evaluating LTC Insurance Quotes

In looking at the quotes you received recently – which ranged from $22,000 annually to $33,000 annually – the first question I would ask is what type of policy did you inquire about? Were they standalone LTC policies whereby you pay a premium and only receive benefits if you encounter a long-term care event? Or were these quotes for different types of policies, such as life insurance with a LTC rider , which would allow you to use a portion of the death benefit for LTC needs?

If you determine that LTC insurance makes sense for your planning goals, then act quickly and go back for revised quotes sooner rather than later since premiums will only become more expensive with age. Unfortunately, it's still possible that you get denied coverage.

But if you can get coverage, then I would suggest looking into policies with a guaranteed premium paying period of 10 or 15 years. You can look at either standalone or hybrid policies , the latter of which combine LTC and life insurance in a single policy (either through a LTC rider or another arrangement). A key benefit of hybrid policies is that they help avoid the “use it or lose it” nature of standalone LTC policies.

Additionally, refunds of premiums are available with hybrid policies. You can also get a guaranteed death benefit, and the pool of funds drawn upon for LTC benefits compounds over time. That said, a standalone policy could be sufficient if you perceive the likelihood of a LTC event to be reasonably high and if you have sufficient life insurance in-place already. (But if you need more guidance selecting a policy or assessing your insurance needs or selecting a policy, speak with a financial advisor .)

Framing the LTC Insurance Decision

Regardless of the type of policy you pursue – assuming you choose to re-engage with insurance providers – remember the valuable role it can play in both your financial plan and your personal life:

• It can be an effective estate planning tool.
• It provides more control from a planning perspective since you can be confident that a major “what if?” scenario is covered.
• Partial coverage is better than no coverage.
• It can provide the opportunity to receive care in your home.
• If your health is not where you would like it to be today, then chances are it will worsen with age.

While the cost of premiums is high, there are ways to reframe the expense. First, rather than funding premiums on a monthly basis through your income, consider structuring premiums annually and funding from your asset base. This way, you can save on the premium cost and potentially benefit from tax-loss harvesting by funding from your brokerage accounts.

It’s also helpful to think about the cost of LTC insurance as a percentage of your assets rather than a big dollar value. How would you feel about spending 1-2% of your assets to protect your savings? What if you earn more than 1-2% each year from your investments? If that transpires (on average) over time, then you might not end up depleting your asset base from current levels, all else being equal, to fund your long-term care needs.

Lastly, be careful about choosing the lowest cost option. While leading carriers and the most optimal policies might not be accessible now, the saying “you get what you pay for” can apply with insurance. The money you save on premiums could result in reduced coverage or insuring through a carrier that is not highly rated. Consulting with an independent insurance broker who provides options from highly rated carriers with excellent claims paying history would be wise.

At the risk of sounding biased, you might also consider consulting with an independent financial advisor that provides holistic advice and specializes in providing LTC advice. This could help you determine how the coverage can fit best into your overarching financial goals and objectives. (And if you need help finding a financial advisor, SmartAsset’s free tool can match you with up to three advisors who serve your area.)

Additional Planning Items to Evaluate

Aside from LTC planning, some additional thoughts for your financial plan come to mind given the information provided.

First, with money market funds still yielding around 5% at the time of writing, it would be wise to shift your $300,000 in cash to one of these funds. As you wait to find the right home, you should at least earn something from that cash!

Also, you might consider diversifying some of your precious metals exposure and aligning that allocation with your long-term goals. Perhaps income is a need in retirement? If so, moving out of assets like gold and silver that do not kick off income into those that do, like bonds and blue-chip dividend stocks , could make sense, as well. (Remember, a financial advisor can help you adjust your asset allocation and invest your money in income-producing assets.)

Bottom Line

Ultimately, the conversation about LTC insurance is highly personal and it leads to a decision that only you and your wife can make. However, looking at your situation objectively given the information shared, it could be a good decision to go ahead and purchase LTC insurance available through quality carriers. You have the means to pay for it and, given your sizable asset base, planning can be done to effectively and efficiently fund premiums.

Like anyone, your health is also likely to get worse with age – so if you think you will need it today, you will probably think that even more so in the future. If you go in this direction, move forward with quotes sooner rather than later because premiums will only go up. Lastly, relative to self-insuring, LTC policies will provide you with more control over how and where you receive care if and when you need it. To some, that peace of mind can prove invaluable.

Tips for Finding a Financial Advisor

• Look for advisors with relevant certifications like Certified Financial Planner (CFP®), chartered financial analyst (CFA), or accredited investment fiduciary (AIF). These credentials indicate a high level of expertise and commitment to ethical standards. Additionally, review the advisor's experience, especially in managing clients with financial situations similar to yours. Vetting the advisor and their track record can help ensure you're choosing someone knowledgeable and reliable.
• Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .

Jeremy Suschak, CFP®, is a SmartAsset financial planning columnist who answers reader questions on personal finance topics. Got a question you'd like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Jeremy is a financial advisor and head of business development at DBR & CO. He has been compensated for this article. Additional resources from the author can be found at dbroot.com .

Please note that Jeremy is not a participant in SmartAdvisor AMP, and he has been compensated for this article. Some reader-submitted questions are edited for clarity or brevity.

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