SelfInsurance
Self Insurance vs. Co-Insure
Self insurance can be a prudent risk management tool for protecting predictable losses. The problem, as it relates to extended care, is that losses can be unpredictable and catastrophic. In fact, you can see (by request) on our proprietary long–term care risk software that financial loss may often exceed $1,000,000—or more. This can be exacerbated when money to pay for care needs to be liquidated from qualified (taxable) funds. The primary culprit is Alzheimer’s—where illness durations are often exceeding 8 years (www.alz.org)
In fact, long-term care utilization has spiked, and you can see that 35% of women and 20% of men who require care will need support for more than 5 years
[self-insure, verb-1.]
The practice of insuring oneself or ones property by accumulating a reserve of funds rather than purchasing an insurance policy.
[self-insure, verb-2.]
A risk management method in which a calculated amount of money is set aside to compensate for a potential future loss.
They have earmarked $150,000 of rainy day money that they have set aside and invest as their “long—term care account”. Let’s further assume that they are brilliant and lucky investors who find a reputable investment that yields 5% tax-free. In twenty years they have $400,000!
While $400,000 is a considerable sum—it will not be if extended care is needed in the 20th year—and that care ultimately costs $1,000,000 or more! Long-term care costs can be unpredictable—and catastrophic. Our brilliant investors find themselves in a difficult financial and emotional situation—rife with second guessing.
In hind sight the couple realizes that they should have co–insured. They would have invested the same $150,000 in an asset-linked insurance vehicle. The product would guarantee a return on their investment that they can access anytime. It would also provide an income tax free and potentially estate tax–exempt death benefit if their cash was never needed—and if extended care was never needed. But if extended care was needed virtually unlimited insurance benefits from the asset linked vehicle can pay for extended care costs—even if those costs exceed $1,000,000—or more.
