Is It for You?

Find out if long-term-care coverage is right for you.

WHILE LONG-TERM-CARE INSURANCE CAN make sense for many people, middle- and upper-middle-class folks probably benefit more than any other group. Couples with investable assets between $200,000 and $2 million are prime candidates, says certified financial planner Harold Evensky of Coral Gables, Fla.-based Evensky & Katz Wealth Management, since they could see their savings devastated by long-term-care expenses.

People with assets of less than $200,000 generally can't afford long-term-care premiums, and many in this group would qualify for Medicaid, which provides medical services for people with low incomes and few resources. What's more, people with modest incomes are probably better off shoring up their savings by increasing their 401(k) contributions or saving in an IRA account.

Things get more complex for people with investable assets in the $2 million to $5 million range, who likely have the financial wherewithal to pay for several years of long-term care out of pocket. They may forgo long-term-care insurance entirely and take on the risk themselves, a process commonly known as self-insuring. The appeal: Since there are no guarantees that they'd ever need long-term care, they get to hang on to the money otherwise spent on premiums and pass it on to their heirs. The downside, of course, is that if long-term care were eventually needed, they'd be stuck with high, if not crippling, bills.

Keep in mind, however, that investable assets are defined as money that's in-hand right now, not down the road. Self-insurers shouldn't merely plan to invest the money they would save by forgoing insurance premiums. "Some people say, 'I'll just put the money away myself,'" Evensky says. "But they might need (long-term care) tomorrow."

Len Hallock, a retiree in Portland, Ore., recently grappled with this issue when he went shopping for a long-term-care policy for his healthy 61-year-old wife. After reviewing a policy that cost $262 per month and paid a maximum benefit of $192,000 for four years of care, he decided that self-insuring was the way to go. "Insurance just didn't make all that much sense to me," he says. "I'm pretty comfortable covering $192,000. It's not like it's going to save us from total ruin."

Still, many people, including the superwealthy, sleep better at night knowing they have a safety net. "It gives them comfort — and they can afford to pay for that comfort," Evensky says. Larry O'Neal, a 58-year-old corporate lawyer from Leawood, Kan., is one such comfort seeker. In 1999, having seen his mother spend two years in a nursing home following a stroke, O'Neal purchased a long-term-care policy for himself and his wife. Even though he has plenty of money salted away, O'Neal rests easier knowing his two sons will never be burdened. "Nobody would like to pay those types of costs for a nursing home," says O'Neal. "It's a lot easier in my view just to pay the premium and forget about it."

Keep in mind that long-term-care insurance is just one part of an overall retirement strategy, and funding your 401(k) and other retirement accounts takes precedence. To see if it makes sense for you, use our calculator.