The Pros and Cons of LTC Insurance for Physicians

Physicians are in the business of protecting the health and livelihoods of their patients. Why should their own health and livelihoods be any different?

As physicians, we are in the business of protecting the health and livelihoods of our patients. Why should our health and livelihoods be any different? From my financial planning experience counseling hundreds of doctors, one helpful policy often goes overlooked. It is Long Term Care Insurance (LTCI), which will pay benefits for home care, assisted living or nursing home care if certain triggers are met.

Should all physicians purchase LTCI? In short, no. Still, with an aging population, the number of Americans needing long-term care in America continues to rise.

How does LTCI work? Benefits are paid when certain triggers are met: the inability to perform at least two of six daily living activities — bathing, continence, dressing, eating, toileting and transferring — or having a cognitive impairment. Studies suggest that owners of LTCI have a 35% to 40% chance of accessing their policy benefits prior to death.

Every physician in his or her late 40s or older should make a thorough assessment of long-term care funding plans. Now is the time to make a decision, whether to purchase long-term care insurance or forgo it and self-insure.

Why should I choose long-term care insurance?

LTCI is a topic I discuss with every one of my clients, especially physicians approaching their 50s. Here are three main reasons a physician should consider purchasing LTCI:

1. Provide For Your Spouse

Though you plan your retirement based on a certain level of assets, the cost of long-term care can be quite expensive — and, at times, unavoidable. Long-term care services are expected to increase faster than general inflation.

In the last five years alone, there has been 4% to 7% inflation annually in the cost of long-term care. Currently, the cost of a private nursing home room is quite substantial. For example, in the Minneapolis/St. Paul area, a room costs approximately $84,000 per year. On average, the same service costs $116,000 in Miami or $153,000 in the suburbs of New York.

There is a danger that a prolonged need for long-term care might significantly impact or even impoverish a couple. Being prepared with LTCI can help financially support you and your spouse.

2. Leave a Legacy, as Intended

If one or both members of a couple end up needing home care, assisted living or nursing home assistance, the cost can diminish or deplete the estate they worked so hard to build. In turn, the next generation would be impacted.

3. Secure Insured Benefits

LTCI allows a couple to shift the cost of care to an insurance company. In my experience, this makes it more likely they will get the level of help and care they need, because the cost is paid by the insurance company (versus out of pocket).

When should I forego long-term care insurance and self-insure?

On the flip side, here are two situations in which you would be better off skipping LTCI from a financial standpoint:

1. Attempt to Save Cost

LTCI is not cheap, and rates can rise. The combined total cost for a typical policy for a 55-year-old couple averages $2,500 to $3,000 per year. This assumes a $150 daily benefit with a 3% inflation rate with shared care option at standard health.

For a 60-year-old couple purchasing the same policy, the cost averages from $3,500 to $4,000 per year. At 65, the couple would pay approximately $4,500 to $5,000 per year. Not only is this a several hundred dollar expense each month, these costs are not fixed. Insurance companies can go back to state insurance regulators and be granted a rate increase if they are losing money on a specific block of policies they sold. Note that rates cannot be raised on an individual insured.

2. Prepare to be Self-Insured

After evaluating LTCI, many physicians decide that they have sufficient assets to self-insure and that even a prolonged nursing home stay at more than $100,000 a year in today’s dollars, with likely inflation going forward, would not disturb the financial plan of the community dwelling spouse or legacy plans.

If you decide to purchase a long-term care policy, be sure to look for a few factors. It is important to select a financially strong insurance company (Note: The average age at claim is 83). Seek out an LTCI policy that is tax-qualified, so that benefits come to you tax-free and the premium will count as part of your medical expenses to the extent that you itemize your deductions. Finally, be sure to include an inflation rider. This will allow the amount of benefit you purchase today to grow with inflation and be adequate if you need benefits in the future.

I encourage you to discuss the pros and cons of LTCI with your financial planner and spouse on your next visit. It’s important to be prepared for the future to protect the health and livelihood of you and your family.

Joel Greenwald, MD, CFP, is a physician-turned financial planner who exclusively provides financial advice to doctors. He has written many articles and been a frequent speaker on how physicians and dentists can achieve long-term financial security. More about Joel Greenwald and his firm, Greenwald Wealth Management, can be found at www.joelgreenwald.com.

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