How to Self-Insure for Long-Term Care

A lot of people say they are going to self insure for long-term care, but don’t actually have a plan to do it. Many people are uninsurable, and their only choice is to self insure.

A lot of people say they are going to self-insure for long-term care, but don’t actually have a plan to do it. Many people are uninsurable, and their only choice is to self-insure. We recommend consulting your financial advisor and tax professional before taking our advice. The question people should ask their advisors: “Do you know which assets in my portfolio are most efficient to use to pay for Long-Term Care expenses?” If they do not have a sufficient answer, give us a call and set up a free consultation, we would be happy to walk you through our Long-Term Care SelfInsured Plan (LTC-SIP).

Self-Insuring efficiently boils down to having enough ordinary income to take advantage of tax code 213. Long-Term Care expenses can be tax-deductible under certain conditions. Pre-tax qualified IRA’s can be a great source to increase an individual’s ordinary income.

Americans spend around $500 billion annually on Long-Term Care, the average length of stay is round three years, and people must spend down their assets to almost nothing before going on Medicaid. Currently, the cost of Long-Term Care is around $150,000 per year with an average of three years of care. Which means to self-insure for Long-Term Care you need $450,000 per individual, and $900,000 for a couple; and you will need this to keep up with inflation and not be subject to much market risk.

Here are Some Key Points to Consider:

1. Medical Expense Deduction
LTC expenses are generally considered deductible medical expenses. If you itemize your deductions on Schedule A of your tax return, you may deduct qualified medical expenses, including long-term care, that exceed 7.5% of your adjusted gross income (AGI). Unfortunately, if your plan is to have a family member take care of you, it is unlikely you will be able to take advantage of the unreimbursed medical expense deduction.

2. Qualified Long-Term Care Services
The services must be considered medically necessary and prescribed by a licensed healthcare practitioner for a chronically ill individual. These services may include care for those unable to perform at least two activities of daily living (ADLs) which are eating, bathing, transferring, toileting, dressing, continence, or for those who have cognitive impairments like Alzheimer’s disease.

3. Non-Medical Expenses
Expenses for general daily living or non-medical reasons (like room and board in a facility) may not be deductible unless the facility primarily provides medical care.

The Long-Term Care planning discussion is real, and it is complicated. With Pacific Insurance Group, it doesn’t have to be. Give us a call if you’d like to hear more.

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