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Ask Dave

Too Late for Long-Term Insurance?

Charles is in a tricky spot because he waited too long.

QUESTION: Charles in Illinois never bought long-term care insurance. He now has health problems and is unable to get insurance. He wants to know if he should self-fund the care or pay off their mortgage with part of his $500,000 in cash. What does Dave recommend?

Dave's ANSWER: The question is if you go into a nursing home, are you going to have enough to pay the bill? That's what self-insured means. With the numbers you've given me, if you paid off the house, you’d have $350,000 in savings with a $40,000 income. A nursing home stay is about $50,000 a year. That would cover seven years, not counting your discretionary income. That's before your wife is left with no money and a paid-for house.

She would have enough to live on after your death if she didn't have any cash. If you pay off the house today, that gives you up to a seven-year nursing home stay, and the vast majority of nursing home stays are less than that. I don't know the exact numbers; you could get those by doing a little online research. I remember it being less than two years on average.

The problem is that the above-average stay drains down the cash and gets mom in trouble. The one statistic that startles all of us in the financial world is that the most expensive year of your life is your last year. That's nursing home and medical care, ambulance trips and whatever. That's usually when your health is failing, regardless of your age. That's the kind of stuff you need to have thought through.

But if you're sitting on $500,000 with that kind of income, independent of the half million, I'm going to pay off the house today. You are forced to use wealth to self-insure through long-term-care-type needs. That's what I'd do in that situation.