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Law Offices of Ronald W. Rutz
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July 2, 1998: Long-Term Care Insurance

Q: As part of my estate plan, should I buy long-term-care insurance?

A: Most of the time, doing the powers of attorney, handling the tax issues, and preparing for the transfer of assets at death are all easily accomplished. But the fear on the part of seniors (though not necessarily the reality) of devastating nursing home expenses makes this part of estate planning hard. Setting up parameters and following a methodology might help with the decision making process.

If a person is in good health or has a small estate (the net worth can vary but arbitrarily let's say less than $75,000 for a single or less than $150,000 for a couple), then the cost of the premiums may not justify the expenditure. Or if the premiums exceed more than 10% of current income, many planners would caution against spending money that then would infringe on one's standard of living.

If assets can be mustered to generate additional income (such as by renting the house, changing the asset mix to generate more income, or using income or dividends that were just left invested and never taken), and if as a result there is a small or no gap between income and the projected monthly nursing home expenses, then the threat to a significant decrease in assets has been reduced or eliminated.

According to the National Association of Insurance Commissioners, 1/3 of all people will be in a nursing home, but for one year or less. Less than 1 in 10 will be in a nursing home for more than five years. Other sources say 40% will be in a nursing home at some point but only 10% will be there for 3 or more years. Again, most nursing home residents will be there for a year or less. One can find statistics all around the spectrum but these seem to consistently reflect results from various unbiased sources. In a sense, part of the decision making is gambling - guessing if you are part of the vast majority that will never be in a home or there for a year or less. Or will you be one of the 1 in 10 with a prolonged stay? Thus, one needs to decide where he or she may fit into the foregoing. But do not start with the mind set that everyone will face a major loss of estate assets because everyone will be in a nursing home at some point in their lives.

Finally, since women live longer than men, and if resources are limited, again planners suggest the wife be insured, unless it is certain that the husband will be the first to go into a nursing home.

Now the foregoing is not intended to discourage the purchase of long-term-care insurance. In a perfect world, yes, everyone should have it. But if resources are limited, then try using the foregoing factors in deciding whether to integrate long-term-care insurance into your estate plan.

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