If you’re approaching retirement, you’re probably aware of the risk posed by long-term care, which is extended assistance with daily living activities such as eating, mobility and bathing. Long-term care is usually provided either in a facility or in the home. Either way, it can be costly and can drain your retirement assets.
AARP recently published a report on the state of long-term care in the United States. Specifically, it ranks each state by the quality and affordability of care available to seniors. While the scores and information vary by state, there is some information that’s applicable to all retirees, regardless of where they live.
For example, AARP estimates that more than half of all people turning 65 today will require long-term care at some point in the future. The report also estimates that care provided in a nursing home can cost more than $90,000 per year, while in-home care costs north of $30,000 annually.1
As you might guess, that kind of expense can have a big impact on a retirement. Long-term care is often needed for years. Over time, the costs can become a major drain on your savings. Consider that long-term care usually isn’t covered by Medicare, and it’s easy to see the importance of planning for this risk.
The good news is there are steps you can take today to minimize your exposure to long-term care risks. Below we explain the difference between a long-term care “policy” and a long term care “plan” – there is a big difference.
The Long-Term Care “Policy”
Many people purchase a long-term care insurance policy as a way to protect themselves against the cost of long-term care. There are plenty of carriers out there, with hundreds of different choices and options ranging in price from very inexpensive to very expensive. This route has been chosen by many as it was traditionally the only way we thought about protecting ourselves. But there are 2 major reasons why we are not bullish on the long-term care policy route.
First is the issue that, like automobile insurance, if you don't use the long-term care policy, then all the premiums you have paid into the policy are gone forever (unless you purchase a return of premium rider for an additional cost). Think about this, you would pay in tens of thousands of dollars into a policy that you hope you never use. Just like automobile insurance, you pay all these premiums and unless you are in a wreck, you never really get to see the benefit of that insurance. Long-Term Care insurance works the same way. If I never enter a long-term care situation, I never really get to see the benefit of having that policy. So, in this case there is a cost of being in good health – the annual premium you would have paid to the insurance carrier.
Secondly, there also may be the case where the insurance company raises the premium on your policy, which they are prone to do, it happens all the time. Enough rate increases and then suddenly the premiums are unaffordable at the point in time when you might need the policy the most. Most Americans are on a fixed income in retirement and big changes to their expenses can have a drastic effect. Once the premiums become unaffordable, the tendency is to terminate the policy and therefore losing long-term care coverage.
So, you can see why we are not very bullish on the concept of long term care policies, we think there is a better way.
The Long-Term Care “Plan”
Another option is to simply have a long-term care “plan”. A plan consists of what you would do in the event that long-term care arises, in other words, if you were to enter a long-term-care situation, where would the money come to fund it how long could you pay for it. Many Americans do not realize they have options available to them to help cover the cost of long term care already at their disposal, like home equity and many more. These options can allow you to help cover the cost of long-term care should it arise. If you never need long term care you haven’t spent money on purchasing long-term care insurance, you get to keep all your money that you would have used to pay the annual premiums.
This concept allows you to remain in control of all of you assets and maximizes the value of your estate throughout your retirement years. If you are not sure whether you are covered for long-term care then give us a call and will help you figure it out.
Ready to develop your long-term care strategy? Let’s talk about it. Contact Coventry Financial Group today at 480-659-2146. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
16831 - 2017/7/17