One of the biggest financial stressors retirees face is healthcare costs. You can mitigate this stress by engaging in the estate and retirement planning process. Chronic illness, or “long-term care” needs, for example, are not covered by Medicare or any Medicare Supplement and thus can become a considerable expense later in life. Long-term care is defined as needing assistance with activities of daily living for more than 90 days as a result of a medical condition, disability, or disorder. These can be either physical, or cognitive, or both.
Long-term care insurance helps cover the cost of stays in nursing homes and assisted living facilities, as well as in-home care from a qualified professional. Many people use long-term care insurance to protect their savings and investments from the costs of these services. Here’s an introduction to long-term care insurance and the process of acquiring it:
The Growing Need for Long-Term Care Insurance (LTCI)
People who are 65 today have a 70 percent chance of needing long-term care at some point, according to recent government statistics and studies. Moreover, about 20 percent of Americans will need long-term care for more than five years. Because long-term care is so expensive, insurance has become increasingly necessary for many people. In the United States, just a single month of care at a nursing home costs more than $7,000, on average. In certain areas of the country, it is a lot higher. For example, on the East Coast, this cost is often $10,000 per month or more.
Studies have shown that the average American will pay $172,000 for long-term care in their lifetime. Many people do not know that regular health insurance does not cover these costs. People without long-term care insurance can end up spending a significant portion of their financial reserves on these services without LTCI coverage. While not everyone ends up needing it, the odds are that you will.
The other point to keep in mind again, is that Medicare and Medicare supplemental plans also do not cover long-term care. Since this is the primary form of health insurance for many retirees, it is imperative to plan for how you would pay for long-term care after retirement, if those expenses did come into your picture. Otherwise, long-term care costs could end up causing you to go through a large amount of accumulated savings, or even accidently disinherit loved ones, or go bankrupt. Additionally, for married couples, a lack of planning could leave the “healthier” spouse impoverished or change his or her retirement completely.
Medicaid does cover long-term care costs. However, this program is meant for people with no money. You essentially need to spend all or most of your assets before you qualify. Additionally, it does not cover everything, and you do not get to choose the level ( or quality) of assistance you receive or the people that provide it.
Unfortunately, this is a real possibility if you need long-term care and do not have the appropriate financial resources in place. For many retirees, long-term care insurance is worth the cost just for the peace of mind knowing that their life savings has some protection.
The Cost of Acquiring Long-Term Care Insurance
The cost of LTCI varies considerably depending on the insured’s age and overall health as well as their family history. In addition, location, policy coverage, and gender also affect the cost. The average 55-year-old man will pay $1,700 annually for a policy that covers $164,000 in care, while a woman of the same age will pay $2,675. Women tend to outlive men, and stay on a claim longer, which is why there is a cost discrepancy.
Couples can get a combined policy that helps save money. Usually, couples save 15 to 30 percent by getting a combined policy. You should keep in mind that the above costs are averages. Your actual plan could be considerably more or less depending on your situation.
The price of a long-term insurance plan is largely dependent on your age. You will pay much less if you sign up when you are younger since you are less likely to need it. This savings can help down the line if you lock in a lower premium. Most new claims start after age 85, with about 95 percent of them filed by individuals who are 70 or older.
If you worry that you may need coverage earlier, it makes sense to buy younger. Spend some time crunching the numbers and thinking about your needs before you decide. Also note that LTCI premiums are tax deductible up to a limit, so that can potentially help mitigate the cost.
The Bottom Line with Long-Term Care Insurance
For most Americans, long-term care insurance is worth the cost. If you need this insurance, the benefit you receive will likely be much more than you paid into the policy. The peace of mind alone may be worth the price, since you will not need to worry about depleting your savings.
Another thing to consider is that long-term care insurance can help you remain in your home longer. Almost everyone in these circumstances wants to stay in the comfortable surroundings of their own home for as long as possible. While these plans cover nursing home stays, and assisted living costs, they also can be used to cover the cost of home modifications like wheelchair ramps, or reimbursement for in-home care. This fosters independence and promotes well-being. LTCI can also protect the value of your estate.
Of course, the decision also depends on cost. Shop around with different insurance providers to see the type of coverage you can get and the cost range to see what is affordable. Just keep in mind that the price will increase as you get older, and changes to your health over time will make it more difficult to obtain the coverage.
Important Note—I am Certified in Long Term Care ( CLTCR), and can also offer other alternatives and solutions for addressing this serious risk, that do not require an insurance policy that you pay every year as long as you live, and which can face repeated premium increases, such as the ones described in this blog. I will address these alternative and attractive solutions in a future post.