The conundrum of long-term care

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Long Term Care Insurance, or LTC, helps pay for the cost of home health care or a retirement home. It also covers prolonged illness or disability. While LTC coverage can be great for retirees, premiums have started to rise in recent years, making it a difficult expense for those with limited income.

So how do you determine the best way to prepare for the costs of long-term care in retirement? Here are two factors you should consider.

Would you prefer a long term care facility or home care?

Before determining the type of insurance you want, you need to determine the likely cost of long-term care. A good first step is to identify where you want to live. The average cost of living in a retirement home in the United States is $ 93,075 per year ($ 255 per day) in a semi-private room and $ 105,850 ($ 290 per day) in a private room. By 2030, these costs are expected to reach $ 125,085 and $ 142,254, respectively. I recommend visiting long term care facilities in your area to see how much they cost and to determine if you can consider living there.

What if you wanted to live in your own home? You can maintain this comfort and familiarity by hiring someone to come to your home. The average price for home care is $ 53,768 per year. The average price of home care is slightly higher at $ 54,912 per year.

Should you choose traditional long-term care insurance or a hybrid plan?

Once you’ve decided where you want to live, the next step is to decide if you can self-insure the cost, essentially determining whether you can allocate some of your current assets to pay for those healthcare expenses. long term if necessary. I recommend thinking about this in a simulation context: “If I go to a long-term care facility for ‘x’ years at cost ‘y’, can I pay that cost without affecting my other goals? of retirement ? If the answer is yes, self-insurance will probably be the most cost-effective and flexible solution to cover a possible LTC expense.

If the answer is no, but you have significant liquid assets held outside qualified retirement accounts, a hybrid LTC insurance policy might be an alternative solution. These insurance policies are designed to provide LTC benefits, but are backed by whole life insurance. After paying a single initial premium, if you need long-term care, the policy pays a specified monthly benefit for a predetermined number of years. If you do not need long-term care or if you decide to stop insuring the risk at any time, you will get your original premium back. Hybrid long-term care policies tend to have a more transparent and flexible cost structure than a traditional long-term care policy.

Also consider the likelihood that your rates will increase over the life of your policy. A 2019 report claims General Electric does not have enough funds to cover claims from its long-term insurance plans. As a result, the company plans to increase premiums by $ 1.7 billion over the next 10 years. Many companies are doing the same. In this case, if you are unable to pay your premium, your policy will expire and you will not be able to recover anything.

I recommend speaking to a certified financial planner to determine the best option for you.

Defined Financial Planning LLC (“DFP”) is a registered investment adviser providing advisory services in the States of California, Nevada and other jurisdictions where it is exempt. Life insurance policies are contracts between your client and an insurance company. Guarantees for life insurance products are based on the financial strength and claims settlement capacity of the issuing insurer. Living benefits and LTC riders are not available on all index universal life insurance products and may not be available in all states. Adding an accelerated death benefit or LTC rider may require additional fees. Accelerated death benefits and LTC riders are subject to eligibility criteria. A public relations firm was paid to assist with media placement.
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Certified Financial Planner Board of Standards Inc. (CFP Board) holds the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER ™ certification mark and the CFP® certification mark logo (with plaque) in the United States, which it authorizes use by those who meet the initial and continuing certification requirements of the CFP Board.

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