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Do Wealthy Investors Need Long-Term Care Insurance?

A market crash might not be the biggest threat to a wealthy investor’s nest egg. In fact, future medical costs can potentially eat up more of your savings. And if you require long-term nursing care at some point, you can expect it to come with a high price tag. According to a study from Genworth, the median annual cost of a private room in a nursing home is just over $91,000.

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Purchasing long-term care insurance can act as a financial safety net if you require extended medical care, but it’s not right for everyone. If you’re a wealthy investor, here are the most important questions to consider when deciding whether to buy a long-term care policy.

1. How Affordable Are the Premiums?

Premiums for long-term care insurance can vary widely based on your age, gender and marital status. For instance, the American Association for Long-Term Care Insurance puts the average annual cost of long-term care coverage for a single 55-year-old female at $1,390 compared to the $1,060 that her male counterpart would pay. For married couples, the yearly premiums, on average, rise to $2,170 for 60-year-old adults.

Other factors that affect the cost of your premiums include the size of the benefits you want the policy to cover and how long you want the benefits to last. Long-term care policies are structured to pay out a certain dollar amount on a daily basis, typically for a period of two to five years. Generally, the higher the daily benefit and the longer the duration of the policy, the more you’ll pay for premiums.

2. Will I Be Able to Deduct the Cost?

Do Wealthy Investors Need Long-Term Care Insurance?

Long-term care insurance premiums are usually deductible as a medical expense, but not every investor who buys one of these policies will be able to write off the cost. For the 2015 tax year, you can deduct the amount of your medical expenses that exceeds 10% of your adjusted gross income. If you’re 65 or older, the threshold is lowered to 7.5% through December 31, 2016.

Whether or not you’ll see any real value from writing off your long-term care insurance premiums will ultimately depend on how high your adjusted gross income is for the year. If you earned a substantial amount, either through working or investing and you’re under 65, the 10% threshold might be difficult to hit.

Related Article: What Can You Deduct at Tax Time?

3. How Much Interest Are Your Investments Generating?

If you’ve invested a substantial amount of money, taking a look at how those investments are growing can help you decide whether a long-term care policy is appropriate.

For instance, if your investments are bringing in enough earnings to cover the annual cost of an extended nursing home stay, a long-term care policy might not be necessary. On the other hand, if you haven’t accumulated enough assets to effectively self-insure against future medical costs, a long-term care policy might look a little more appealing.

Consider Long-Term Care Insurance Alternatives

Do Wealthy Investors Need Long-Term Care Insurance?

Long-term care insurance is designed to cover medical expenses. But if your primary concern is leaving something behind for your loved ones, purchasing a life insurance policy instead might make more sense.

A whole or universal life policy would stay in effect as long as the premiums are paid, and would allow you to build some cash value. The premiums are higher than the premiums of term life policies, but there’s no limit on the duration of your coverage.

Find out now: How much life insurance do I need?

Many insurance companies now offer hybrid policies that combine life insurance with long-term care coverage. These policies often require you to pay a large premium up front in a lump sum. But they offer an advantage over traditional insurance policies.

Policy benefits can be used to pay for long-term care if you need it but if you don’t, your heirs can receive the benefits as life insurance proceeds when you die. The cost of a hybrid policy is typically much higher than standard long-term care insurance, however.

Photo credit: © Chiang, ©, ©

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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