Without question, we will all face additional costs to care for ourselves or for aging loved ones. How we pay for those long-term care costs (nursing home care, at-home care, etc.) is what should be planned out ahead of time. One option is Long-Term Care (LTC) Insurance. If you get LTC insurance, you will be reimbursed for common day-to-day activities, but you must first demonstrate you have lost the ability to engage in at least two activities of daily living (ADLs) which are: eating, bathing, dressing, toileting, walking and continence. After making sure you fully understand what Long-Term Care insurance is, it’s important to understand what experts say about it, what the costs and benefits are, and what alternatives are available in order to decide if it is right for you.
What the Financial Experts Say
Many financial experts suggest that Long-Term care insurance is a not a smart investment if you pay more than 5% of your monthly income on it. Since the launch of LTC insurance for consumer consumption, many experts have found that many policyholders have been unable to continue paying their premiums due to increasing cost. Premiums can rise at any point in time and are not fixed (like Life Insurance). Also, many of those who purchased LTC insurance and then lived at a nursing facility were unable to collect any reimbursement because they could still perform their ADLs. Lastly, many of the LTC benefits that were paid were often less then the actual cost of care (source).
What You Pay for Long-Term Care
The annual cost for LTC insurance can range from $3,000 – $6,000 depending on a variety of factors, such as sex, age, health status, maximum daily benefit, length of benefit, and waiting period. Those premiums can go up in yearly increases of 3% to 5% (source). Keep in mind that you may start paying for LTC in your 50’s, but may not need it until your late 60’s or 70’s.
What You Get from Long-Term Care
A strong LTC policy may cover at least $300/day. This type of policy may have inflation protection, which often only lasts for three years. The volatility in healthcare costs may limit the value of $300/day in 10-20 years from now. The coverage offered through LTC can provide, in many cases, more than Medicaid and can include anywhere from 24-hour care in your home (or at a facility) to just a few hours a week in at-home care.
What Are the Alternatives to Long-Term Care
To determine what coverage you will need, first determine how much you will have in your retirement savings and income. Based on that, you can calculate the cost of care in your area using the Cost of Care calculator from Genworth. Using the anticipated cost in comparison to your future income and assets will help you identify what (if any) difference exists. Based on your findings, discuss what options will work best for you with your financial advisor.
How to Know if LTC is Right for You
In the end, you need to make the right choice based on your personal circumstances. To get started, follow these steps:
- Do your own research and don’t fall for any sales pitches
- Compare policies and all of the benefits offered from each one
- Read and understand the fine print in each policy
- Ask all of your questions up front and write down the answers
- Understand and research each company
- Search for any consumer reports on the policy offered
- Do not buy what you cannot afford
- Apply early and plan for the future
- Think about your spouse in each policy
- Discuss and review this topic every single year
What we do know is the future is unpredictable, but we can plan to put ourselves in the best financial position possible. Discuss all options available and choose what is right for you and your loved ones.