Case Study: Self-Funding LTC Costs

Bob and Mary are typical retirees. They worked hard their entire lives, saved, and addressed the obstacles to an enjoyable retirement –except one. Bob and Mary have not prepared for the risk of needing long-term care (LTC).

They have been presented with the idea of LTC insurance. However, the concern over the “use it or lose it” concept of LTC insurance along with the thought of paying premiums during retirement, is of concern to them.

Should LTC become a reality, they have decided that the CD they own at the local bank will be used to pay the cost. Bob and Mary are willing to assume the entire risk of LTC themselves based on the options they have been given.

The problem with self-funding LTC comes with its high price tag. While many have a “rainy day” fund like Bob and Mary’s CD, there is no guarantee that it will be enough. Care could last for an extended period of time – and Bob and Mary may both require care. Rainy day funds can be quickly exhausted in such scenarios.

Another approach may be to use the rainy day asset to purchase a much larger pool of dollars that can be used for LTC expenses. A joint-life hybrid policy is whole life insurance that allows access to the death benefit for qualifying LTC expenses. Funding this policy with a single premium from a source such as a CD, can provide a larger pool of dollars for care, guaranteed cash value accumulation, and if care is never needed, a death benefit.