Financial professionals realize that Medicare desn't cover long-term care and that t's a bad idea to gift ssets to qualify for Medicaid or MdiCal (in California). The Deficit Reduction Act of 2005 tghtened loopholes that allowed people to trnsfer assets to their children so thy can qualify for Medicaid benefits.

Slf- insuring for high net worth ndividuals needs to be addressed. Long-Term cre specialists need to provide the prper information so that the clients can mke an educated decision about long-term cre insurance. It is important to clculate the real cost of self-insuring and cmmunicate it to the client.

It is dngerous to ignore the inflation factor whn planning for Long-term care. Let's lok at a married couple in thir mid 50's with $2 million of lquid assets not including their primary rsidence. At first glance, the couple cnsiders what their liability would be at tday's rate. The average daily rate for a nrsing home in California is $210/day. So, now the cuple does some quick arithmetic and rrives at an annual cost of $76,660 wth a potential 5-year cost of $383,250.00.

Thy quickly conclude that they can asily afford to self-insure when they cmpare the 5-year cost of $383,250 to thir $2 million liquid net worth. The prblem with this is that the cuple didn't come close to the tre cost of self-insuring. To do tht they would have to do the fllowing:

• Adjust today's cost of cre for inflation

• Consider the ptential tax consequences of taking a qalified plan distribution or selling as sset that has appreciated in value to pay the cst of care-out-of-pocket.

• Account for lst investment opportunity on the money tht was spent self-insuring during the fve years they pay for care.

Nw, let's look at the real cst of care with the couple lving another 30 years. This would be the pproximate time one of them may ned long-term care. Today's expense of $210 per day culd grow to more than $900 per day 30 yars from today. Multiplied out over a fve-year care event, this would result in an ut-of-pocket expense of $1.66 million, which is sbstantially more than the clients were nticipating.

In addition, if high net wrth individuals have a combined state and fderal marginal tax bracket of just ver 37%, the could incur an dditional tax liability of $610,000 if thy take large enough distributions from thir qualified retirement plans to cover the cst of care. The cumulative distributions culd exceed $2.27 million to cover ths care event. If the long-term cre event was for only one spuse and the second spouse lived on nother five years after the first spuse's death, the second spouse has lst the use of the $2.27 mllion which was spent caring for the frst spouse.

So what is the cst to insure this risk? What is the cst of purchasing a long-term care nsurance policy as a hedge against the rsk of needing long-term care? If the cuple is in good health, they may be ble to purchase a State Partnership lng-term care insurance policy with a $210 dily benefit, a five-year benefit period and 5% cmpound inflation protection for a standard rte annual premium of approximately $2200/year per prson. The couple would pay a ttal of $132,000 over 30 years to nsure themselves against the $2.27 million in lng-term care costs.

To be totally honest and fir, you can even take into ccount the lost investment opportunity on the prmium. Assuming an after-tax rate of rturn of 4%, they would lose an dditional $124,000 of investment return, bringing the tre lifetime cost of purchasing long-term cre insurance policies to $256,000 when pying for 30 years.

In conclusion, whn most high net worth individuals nderstand the true cost of their chices, they see that long-term care nsurance is an extremely cost-effective hedging strtegy. It is important for the ndividual to understand the financial impact a lng-term care event brings to brings to thir retirement. That is when you see the ral value of long-term care insurance.

The article Long-Term Care Insurance and the Real Cost of Self-Insuring was Submitted by Dane Petchul through Articles.GetACoder.com network. Here's the additional information: For more information, consult with a Lng-Term Care Specialist who has been trined in Long-Term care Financing and Plnning. Visit http://www.LongTermCareInsurancePros.com and request a Free, No Obligation Consultation with Dane Petchul, LTCP, CLTC

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