Sign On
Though advances in technology have contributed to longer lifespans for many, this also means an increased need for long-term care. The reality is, more than half of older adults, regardless of their lifetime earnings, are projected to experience serious long-term service and support needs after turning 65. While this might sound daunting, fortunately there are ways to better prepare and help ensure that your retirement years are as comfortable as possible.
The cost of a private room in a nursing home can be quite steep, with the median cost often exceeding $100,000 a year, depending on your location. Such expenses can make a big dent in your retirement savings or the inheritance you wish to leave behind. You may even face the risk of placing your loved ones in a position of covering your long-term care expenses.
But here’s the good news: Long-term care insurance can help better protect you, your loved ones and your assets.
Long-term care insurance
Long-term care insurance is designed to cover the costs associated with long-term care services, which are not often typically covered by regular health insurance or Medicare.
Most long-term care policies provide a daily or monthly benefit amount that can be applied to a variety of settings, including:
- Home health care
- Senior day care services
- Hospice or respite care
- Assisted living facilities (also called residential care facilities or alternate care facilities), possibly including Alzheimer’s special care facilities
- Nursing Facilities
Comprehensive long-term care polices may also cover some at-home services such as:
- Skilled nursing care
- Occupational, speech, physical, and rehabilitation therapy
- Assistance with personal care such as with bathing or dressing
Coverage typically kicks in when a licensed health care professional confirms that you have a cognitive impairment or can no longer manage two out of six activities of daily living. These activities include eating, bathing, dressing, using the toilet, moving around, and maintaining continence.
Who can use long-term care insurance?
Long-term care insurance isn’t one-size-fits-all. Consider that you might not need long-term care insurance if you have enough assets to comfortably set aside funds for three to five years of care — whatever the costs may be in your area. However, consider earmarking these funds specifically for long-term care, and keeping them separate from your retirement savings.
Keep in mind that the need for long-term care can also arise from unforeseen illnesses not associated with normal aging, including those illnesses that may impact your cognitive abilities, like Alzheimer’s or a stroke. This means you might require care at a younger age and for a longer duration than average. When thinking about purchasing a policy, take a close look at your family’s health history and consider how likely it is that you’ll need long-term care in the future.
Types of long-term care insurance policies
There are four different types of long-term care insurance policies to consider, each offering unique benefits and features:
- Stand-alone policies are traditional long-term care insurance plans that provide coverage solely for long-term care services. They do not offer death benefits or accumulate cash value.
- Asset-based long-term care insurance combines long-term care coverage with a life insurance death benefit, all in one policy.
- Life insurance with long-term care or chronic illness riders allows you to add a rider to a life insurance policy that may give you access to the policy’s death benefit for qualified care expenses during your lifetime.
- Annuities with long-term care benefits offer income tax-free benefits when used for qualified care expenses.
How much does long-term care insurance cost?
The cost of long-term care insurance can vary widely. Factors such as your age at the time of purchase, the type of policy, and the coverage amount all play a role in determining the premium. Oftentimes, the younger you are when you purchase a policy, the lower your premiums will be. The annual cost typically depends on a few key factors:
Duration of benefits. This term refers to how long your policy will cover the care you need. If you opt for a shorter benefit period, your premiums may be more affordable. On average, long-term care services last about three years. Choosing a benefit period of three to four years versus that of a lifetime may prove more cost effective for your specific needs or wants, depending on your personal circumstances.
Daily or monthly benefit. This is the amount your policy will pay for your care on a daily or monthly basis. If your actual care costs exceed this amount, there is a good chance you’ll need to cover the difference. It’s encouraged you align the benefit amount you select with the type of care you desire and your ability to handle any additional expenses.
Elimination period. This is essentially a waiting period before your policy starts paying out benefits. It can range from 0 to 365 days, during which you’ll need to pay out of pocket. A shorter waiting period often means higher premiums. Many people choose a 90 or 100-day elimination period to coordinate with Medicare if there’s a qualifying hospital stay before care is needed.
Inflation rider. This feature allows your chosen benefit to grow annually, typically at a compounded rate of 3% or 5%. If you anticipate needing benefits in 15 to 30 years, considering inflation is crucial.
Other factors that can influence the cost of your long-term care insurance include: the type of care you select, if the policy allow for shared benefits between spouses or partners, any preexisting conditions, and whether your policy offers guaranteed renewability. It’s important to thoroughly review your options and the terms and conditions of any policy before making a decision.
Preparing for retirement with confidence
As you prepare for retirement, think about the potential costs of long-term care in an effort to make better informed decisions. If you have any questions or need guidance, reach out to a financial advisor who can help navigate you toward a plan that’s just right for you.
