Helping HNW Clients Decide to Self-Insure Against LT Care Costs – or Not

Helping HNW Clients Decide to Self-Insure Against LT Care Costs – or Not

It’s a bit of boilerplate in the profession: high-net-worth clients should provide for long-term healthcare expenses via self-insurance.

The trouble with receiving the accepted wisdom is that it tends to be done without reflection – indeed, that’s rather the definition of the vice. In practical fact, each wealthy client faces different circumstances and the matter needs careful consideration. Let’s start with a five-point checklist. 

Looking more closely at the matter, let’s ask the foundational question first. We assume wealthy clients should self-insure against LT care costs – what is our definition of wealthy? Is a customer holding $1 million in assets in the same boat as another with $10 million? You may have a client who’s self-insured already: do they know the potential costs of care – are their assumptions valid? Just how much is enough? 

Net worth is often used to measure a person’s ability to pay for LT care. This is a commonplace assumption and a common mistake. The real measure of a client’s ability to pay for care is income. While portfolio assets can certainly be sold, when a health crisis arises, there’s no way of knowing whether market conditions will be sanguinary or not, and liquidation could become a costly affair. For planning purposes, the self-insured should assume they’ll pay for care out of income. 

Among HNW clients, we expect to encounter a healthy income figure. However, it’s essential to understand just how expensive LT care has become – depending on the state, it can top $10,000 per month and the average annual cost of stay, while varying depending on the estimate, is usually reckoned at around $100,000. If the client’s income isn’t great enough to foot such a bill, other funding means, such as a dedicated insurance policy, could be required. 

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For more, please see:
Should Some Clients Self-Insure for Long-Term Care? | Commonwealth

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