"Wealthy? Don't bother with Long Term Care insurance, you can write a check for that."

Over the years, you’ve worked hard, and been successful. You have a $5M plus net worth and you’re about to retire. When you ask your financial advisor about Long Term Care insurance, he tells you “You’ve got plenty of cushion in your portfolio, Cathy. You could easily write a check to cover your LTC needs. Don’t worry about it.” ?Whew… sigh of relief, right?

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Let’s consider this. There’s no way to predict what an LTC event might cost. It could be a few weeks of rehab in a skilled nursing facility after a broken hip, or it could be seven or eight years of informal, unskilled care if you suffer from something as common as age-related frailty and want to remain in your own home. Unless I’m mistaken, chances are that you’d rather not go into a nursing home, right? What if, in 20 years, when you’re 82, you need care, and you want to stay in your own home? At that time, an hourly home health aide – not a nurse, but “just” a home health aide – is projected to cost roughly $65 per HOUR. (National average costs - check out Genworth’s Cost of Care page here Cost of Long Term Care by State | Cost of Care Report | Genworth) ?If you have a home health aide in for just 8 hours a day, 7 days a week, that’s $189,800 per year. Three years of that would cost $569,400.

Three years in a nursing home in 20 years - $632,844.

So, the cost of a potential long term care need is extremely unpredictable. You may never spend a penny on LTC, but it’s also conceivable that you could pay hundreds of thousands of dollars.

How likely is it that you'll need care? Well, per a study released by DHHS in 2021, 56% of Americans are going to need LTC at the level that would trigger benefits under a tax-qualified long term care insurance policy. So, not only is the cost potentially staggering, the likelihood that you’ll need this type of care, at least for some period of time, is quite high.?

To summarize:?Long term care risk - Highly likely & unpredictable maximum cost.

?Now, let’s look at another risk – homeowner’s insurance. You have a couple of nice homes, one in the suburbs, the other on a lake up in the hills. Your primary home would easily sell for $650K right now, and the lake house for $500K. You have some very nice personal belongings in each. Let’s say the total value of “stuff” in your primary home is $250K, meaning a total value of $900,000.

What are the odds of coming home to find a smoking hole or a pile of rubble where your house used to be? In 2023, only 6% of homeowners filed a claim for damages. (From 2016 to 2022, the average property damage claim was $13,962, and the average claim for fire or lightning damage was $77,340.) When you look at all homeowner's claims, I'm told that only 1% to 2% of those claims were considered a total loss. 2% of 6% of homeowners who file a claim = .0012%, or just 12 in 10,000 insured homes that end up suffering a total loss.

To summarize:?Total loss of home - Very unlikely & predictable maximum cost

So, here’s the big question. Did that financial advisor tell you to cancel your homeowner’s insurance? After all, you could easily write a check for that.

Your advisor would never tell you to cancel your homeowner’s insurance, would they? So why would you choose to insure the low likelihood, very predictable risk, but not insure against the very high likelihood, utterly unpredictable one?

What's your plan for long term care?