Ask an Advisor: With $3.7 Million in Assets, Should We Purchase Long-Term Care Insurance?

We have $650,000 in my IRA, a $404,000 401(k) for my wife, $1.97 million in stocks and $300,000 in cash saved for a house that's doing absolutely nothing. We also hold $280,000 in gold and silver, as well as $91,500 in a Roth IRA. Should we buy long-term care insurance now, and if so, how can we find affordable rates? My main concern is losing our assets to medical expenses.

In a vacuum given your circumstances, "biting the bullet" and purchasing long-term care (LTC) insurance for you and/or your wife seems to make sense. However, there are other planning-related factors you should consider before moving forward with a policy (or policies). First, we'll discuss a few important items that will illuminate the tradeoff between buying LTC insurance and self-insuring. Next, we'll review the quotes you've received and why, despite the "sticker shock" you might find LTC insurance to be a sound use of money. Lastly, we'll offer some additional, ancillary planning ideas you can think about pursuing in addition to the insurance decision.

Whether you're planning for long-term care or need advice managing your assets, connect with a financial advisor and see how they can potentially help.

Your concern about losing the $3.7 million you have worked so hard to build to an unfortunate health event is valid and rightly top-of-mind if health is a primary focus for you. Of course, this is what LTC insurance is there for! But consider going a step deeper – why do you want to protect the assets you have grown by actively saving and investing over your lifetime ? Thinking through this for yourselves will help to refine the insurance equation.

Maybe you have children, grandchildren and/or other loved ones to whom you would like to leave an inheritance. Perhaps there's an organization, cause or mission you would like to support after your passing. If estate planning is part of your calculus, then protecting your assets becomes even more important and you should strongly consider "biting the bullet."

In addition to estate planning goals, think about your retirement objectives. What do you expect to spend annually over the duration of your retirement? This might include a down payment and mortgage for the home you've been hoping to buy.

Reviewing your anticipated all-in expenses in retirement – in conjunction with your expected annual investment income and other earnings – will help you determine how much you need to withdraw from your income sources and asset base each year. Furthermore, this will help you understand whether you can self-insure by using your assets and income to cover any LTC-related costs. If you don't plan on leaving a legacy, and if other retirement expenses are reasonably low, then you could feel more confident not having LTC in place since you have amassed a sizable nest egg. (A financial advisor can help you set goals and prioritize your needs in retirement.)

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In looking at the quotes you received recently – which ranged from $22,000 annually to $33,000 annually – the first question I would ask is what type of policy did you inquire about? Were they standalone LTC policies whereby you pay a premium and only receive benefits if you encounter a long-term care event? Or were these quotes for different types of policies, such as life insurance with a LTC rider , which would allow you to use a portion of the death benefit for LTC needs?

If you determine that LTC insurance makes sense for your planning goals, then act quickly and go back for revised quotes sooner rather than later since premiums will only become more expensive with age. Unfortunately, it's still possible that you get denied coverage.

But if you can get coverage, then I would suggest looking into policies with a guaranteed premium paying period of 10 or 15 years. You can look at either standalone or hybrid policies , the latter of which combine LTC and life insurance in a single policy (either through a LTC rider or another arrangement). A key benefit of hybrid policies is that they help avoid the "use it or lose it" nature of standalone LTC policies.

Additionally, refunds of premiums are available with hybrid policies. You can also get a guaranteed death benefit, and the pool of funds drawn upon for LTC benefits compounds over time. That said, a standalone policy could be sufficient if you perceive the likelihood of a LTC event to be reasonably high and if you have sufficient life insurance in-place already. (But if you need more guidance selecting a policy or assessing your insurance needs or selecting a policy, speak with a financial advisor .)

Regardless of the type of policy you pursue – assuming you choose to re-engage with insurance providers – remember the valuable role it can play in both your financial plan and your personal life:

It provides more control from a planning perspective since you can be confident that a major "what if?" scenario is covered.

It can provide the opportunity to receive care in your home.

If your health is not where you would like it to be today, then chances are it will worsen with age.

While the cost of premiums is high, there are ways to reframe the expense. First, rather than funding premiums on a monthly basis through your income, consider structuring premiums annually and funding from your asset base. This way, you can save on the premium cost and potentially benefit from tax-loss harvesting by funding from your brokerage accounts.