Protecting Yourself From Long-Term Care Costs

The cost of healthcare has been a big topic in the media for many years now.  But a big part of healthcare that doesn’t get talked about very much is long-term care.  Long-term care is part of healthcare, but it’s not really medical care.  It’s for people who need help with the activities of daily living.  This is things like eating, drinking, dressing, bathing, transferring, & toileting.  Traditional health insurance and Medicare don’t cover the cost of long-term care (unless it’s for a short-term rehab situation).  Coming from someone who has had several family members who have needed long-term care, let me tell you, it can be VERY expensive.

How Likely Am I To Need Long-Term Care?

A person turning 65 years old today has a 70% chance of needing some type of long-term care services during the rest of their lives.  That’s a very high possibility.  On average, women need care longer than men, because they live longer.  The average woman needs care for 3.7 years, the average man needs it for 2.2 years.  Now on the flip side, about 1/3 of today’s 65 year-old’s may not ever need long-term care.  However, about 20% will need it for more than 5 years.

How Expensive Is Long-Term Care?

The cost of long-term care will vary by state.  But here are some of the national average costs (in 2016):

  • $225 a day or $6,844 per month for a semi-private room in a nursing home
  • $253 a day or $7,698 per month for a private room in a nursing home
  • $119 a day or $3,628 per month for care in an assisted living facility (for a one-bedroom unit)
  • $20.50 an hour for a health aide
  • $20 an hour for homemaker services
  • $68 per day for services in an adult day health care center

How Can I Protect Myself?

At those costs, you can see how a few years of long-term care could seriously derail a retirement plan for a surviving spouse or family.  Fortunately, there are some great ways to protect yourself from this risk.  Depending on your situation, one may work better than another for you.

Traditional Long-Term Care Insurance.  This type of insurance has been around for decades.  The majority of the insurance companies who used to sell it have gotten out of the business.  The ones still selling it are doing everything they can to protect their balance sheets.  These policies spell it out very clearly that they can raise the premiums on you at any time.  Granted, they have to raise them on the entire block of business, they can’t just single out one person.  But there’s no way to tell how high they will raise them, or when they will do it.  My most recent experience with this was with a client couple who I helped buy this type of insurance.  On their 3rd policy anniversary, the insurance company sent them a letter stating that they were increasing their premiums by 30%!!  And they had only owned it for two years.  This type of insurance is getting more and more difficult to qualify for, many people get declined.  And the final challenge is, if you end up not needing long-term care after paying all those premiums for years, you don’t get your money back.

Asset Based Long-Term Care Insurance.  This is an option that is great for someone who has a chunk of money (not in an IRA) that they’re saving for retirement.  You can put this money into a policy (usually an annuity) that will grow for you with no risk to your principal.  Part of the earnings go towards buying long-term care insurance.  The rest of the earnings accumulate in your account.  If you ever need long-term care services, you’re guaranteed a certain amount of money to be available for that care.  As an estimate, the long-term care benefit you get is going to be about 3X whatever you put into the policy.  A big upside is that if you end up not needing long-term care, the money you put in plus the net interest is yours to keep.  And, you can take the money out early if you need to.

Life Insurance With An Accelerated Death Benefit Rider.  This third option can work great for someone who either has a lump sum of money or wants to pay a small amount each month to fund the policy.  This is an actual life insurance policy that would pay a death benefit to your beneficiary if you die.  However, the accelerated death benefit rider makes the majority of the death benefit available to you while you’re still alive to pay for long-term care.  To qualify for this you usually need to require assistance with any 2 of the 6 activities of daily living.  Another plus about this option is that the policy is building up cash value as you go along.  If you ever wanted to pull some of that cash out for any reason, you can do that.  It’s considered a loan against the policy which you can either pay back or not.  If you were to pass away while you had an outstanding loan on the policy, the insurance company would just deduct that loan amount from the death benefit.  Not all accelerated death benefit riders will let you use the money for long-term care, so you need to make sure you get the right product.

The expensive cost of long-term care is a huge ‘what-if’ that could easily destroy your carefully planned retirement.  Work with a professional who is familiar with the products out there, and who can shop around to many insurance companies.  By using the asset based or life insurance based products, you aren’t throwing your money away in the event that you don’t need care.  And, the money is always there for you to use for other things if you need it.

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