How Many Assets to Self-insure?
- Thread starter Nikita
- Start date
- 11,997
In the Commonwealth of Virginia I have the right to self-insure on car insurance. Could I afford to pay for the repairs on someone's vehicle in the event of an accident? Probably. Could I cover their medical bills and lost income? Perhaps. Would I want to do any of that when an insurance company will be on the hook for literally millions of dollars for $100/month?
Never risk more than you can afford to lose.
If someone is willing to take the risk of what would be a devastating loss for something with a reasonable chance of happening for peanuts, there is no reason to not take them up on that offer.
I'm not a huge LTC guy, but I'm pretty sure you can easily clear more than $85k/year in LTC expenses; that's assuming they don't have anything else they want to spend money on. At $10k/month it's going to be a slow bleed.
Do they want to keep the ~3mm?
Never risk more than you can afford to lose.
If someone is willing to take the risk of what would be a devastating loss for something with a reasonable chance of happening for peanuts, there is no reason to not take them up on that offer.
I'm not a huge LTC guy, but I'm pretty sure you can easily clear more than $85k/year in LTC expenses; that's assuming they don't have anything else they want to spend money on. At $10k/month it's going to be a slow bleed.
Do they want to keep the ~3mm?
IMO - You might have enough, but why would you self insure? Spend a fraction of your income to protect millions. Plus many people who buy that we think self insure want the "other" things that come with a policy. Potential reduced rates, care coordinators. These are people that usually have the best, they aren't going to skimp on care of randomly go thru the yellow pages to find it. But they might also be interested in cash plan that gives them complete control over how they receive care.
- 2,584
I agree.
But it might be worth pointing out the ramifications of "self insuring" that they are not thinking of.
Uhhh, self-insuring is a cash plan.
- Thread starter
- #16
You have made alot of assumptions here. First of all, I am trying not to give them advise, I am trying to learn from this forum, in a general way, by asking general questions. Secondly, this couple are existing clients who have other insurance from me. They asked me to discuss LTC with them. And that is what I am doing. It would be ridiculously absurd for me to tell them "no I'm not going to discuss Long Term Care with you because you have alot of assets and you might be able to self-insure but I'm not qualified to discuss that with you so I'm not going to discuss it at all." To reiterate, I am not planning on giving them advise on self-insuring. That was a question I was asking for my own purposes and to see if there were any general guidelines or some kind of analysis tool. I know some of the carriers have tools like this and I was wondering if anyone was familiar with them. I was just wanting some general feedback, its not always as black and white as you make it out to be. Thank you ~
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Thank you to those who took the time to offer thoughtful feedback. This couple is looking at MedAmerica which is the only cash plan available right now, but they are troubled by MA's financial ratings. Another sticky point is that they are probably one of the healthiest couples in Iowa and they feel the chances are low they will ever need LTC. I know that is a common objection and I have showed them the statistics etc. I am not spending alot of time on trying to close this deal. The ball is in their court, if they decide to buy I'll write the app. And yes I have lots of other clients that I am working with but these people are also existing clients and a great referral source. I thought if I could show them an analysis tool it would be useful to them in their decision process.
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That's the community of people you are dealing with here... They jump on you without rhyme or reason.
IMO MedAmerica's Simplicity was a great product. I know people who went on claim - and the process was painless. They got cash every month which allowed them to use home care judicially and allowed family members time off too to take care of the person in question. Their financial ratings are (in my opinion) an artifact of the method they use to evaluate finances - I don't feel bad recommending their products to clients (at least for that reason).
Regarding the option to self-insure. Most of the suppositions or tools would present a sort of scenario - given that the cost of care is $X /month right now, and given the rate at which cost of care is increasing, and assuming that you need care in 20 years, and also given the average recommended length of the policy coverage is 3 years, you are on the hook for $YYY in care costs (pretty steep). ON the other hand, LTCi policy covers $Z/day, with inflation (or CPI) index the pool of money grows to $ZZZ over the same span of time. Given present interest rates/or investment rate - you need $VVV to finance the same amount using your own funds from the start, or $MMM in monthly contributions.
Let me know if you are interested - I can run such simulation for you.
There are many variations of these scenarios. Also, if you look at the nursing homes - 75-80% of the residents are women. Shared care riders (which are available in some cases) would provide coverage for the other spouse in case of the demise of the other one. There are also other considerations - typical nursing home costs far outpace the amounts covered by reasonably priced policies even...
Nikki,
Outside of my HP 12C I do not have any fancy software tools, but I think your couple can self insure the risk should they elect to.
With 3M in projected liquidity, it would be terribly difficult to run out of money.
As you know, the cost of a nursing home in Iowa is $64,000 inflating at 6% per annum. In 20 years when your clients are 84/79 the cost is projected to be $205,000 year. If a $3,000,000 nest egg is generating a 4% IRR, a $205,000 annual withdrawal will take 22 years to burn through the nest egg. Granted, I did not inflate the $205,000 withdrawal by 6% per year, so it will be less than 22 years, but your clients are still projected to be in a position to pay for extended care if this is their comfort level.
The MedAmerica cash plan is a good policy. But if they are concerned about financials, just write a reimbursement model with Mass Mutual and save your clients 40% premium.
Either way, your clients will be fine.
It will not hurt your clients to have an LTC policy to take the sting out a little bit.
The LTC premium will not impact their lifestyle.
Show them the Mass Mutual reimbursement policy as an alternative to the cash policy with MedAmerica and allow them to make a choice as to what is most important to them. cash benefit, 40% more premium; reimbursement benefit, 40% savings; AAA rated company.
If they do have children and do not wish to burden the children with these issues, or wish to protect their assets somewhat as a legacy, they should buy some coverage.
- 2,584
I don't agree with this. There were many helpful responses here, IMO.
Even ones that feel adversarial can bring out a discussion that may help.
Are you saying they should have a shared care rider?
Well, yes. But you can pay a premium to have an insurance company give you more cash than your premium at the time of claim. Then you can use that money any way you want to pay for your care.
You can also look at the linked products, transfer a small portion of your money and leverage it to get more money if you need it. Pay $.20 on the dollar at claim time, rather than $1 for $1. In my experience, people with money didn't get it by not protecting themselves.
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