2 minute read
Long-Term Care
–Mark Twain
Most people are hesitant to discuss long-term care insurance. It can be difficult to imagine not being capable of living on your own. However difficult it may be to address this topic, the alternative likely is worse. Imagine tapping your hard-earned retirement savings to pay for expenses not covered by traditional medical plans or Medicare. Those costs might include, but are not limited to, personal hygiene, diet, movement assistance, home monitoring and, of course, labor costs. Long-term care insurance is designed to avoid or at least minimize the financial strain that one can incur as you age or become ill or incapacitated. The costs of a policy can vary by age, health and state of residence but, as an example, a 55-yearold man in good health can expect to pay about $1,700 per year. That will cover about $164,000 in benefits when the policyholder takes out the insurance and about $386,500 at age 85, assuming benefits increase 3% a year. This data is according to a 2020 price index survey conducted by the American Association for LongTerm Care Insurance. This premium may sound expensive, but when you consider the average cost of a private room in a nursing facility is roughly $8,800 a month ($105,600 per year), it doesn’t seem too bad. With costs like these, retirement savings can disappear fast. Medicare covers only limited medical costs such as brief nursing home stays and limited skilled nursing and rehabilitation services. Keep in mind that, according to the Urban Institute and the U.S. Department of Health and Human Services, the average 65-year-old has a 70% chance of needing long-term care in their lifetime with the average stay lasting about two years. Roughly 20% of those who need long-term care stay five years or more. Before purchasing a long-term care policy, it is important to understand when the coverage begins and how long will it last. It used to be that policies provided coverage for life, but today most cap benefits at one to five years. Additionally, policies vary on how long before you may access the benefits (known as the elimination period). The premiums you pay may increase over time, so you will want to know whether your cap on benefits will increase as well. Some carriers allow for you to place an inflation rider on your policy, enabling you to raise your daily benefit every year. Some or all the long-term care premiums you pay may be tax deductible at the federal and state level. Check with your personal tax advisor to see if you qualify. Obtaining long-term care insurance is a very important decision to make as your work through your financial plan. Please check with your advisor at Means Wealth to see if a long-term care policy makes sense for you.
