By 2033, more than 11 million middle-income seniors aged 75 and older may not be able to afford assisted living or qualify for Medicaid to pay for their long-term care.
These findings, released in August by researchers at the University of Chicago’s NORC, reinforce the need for Americans planning for the future to consider the options available to maintain a comfortable lifestyle in retirement.
As many seniors look to their adult children for housing and care, financial advisers who specialize in retirement planning suggest that long-term care insurance can help reduce or eliminate the funding gap for that retirees retain their independence.
Let’s first look at what long-term care insurance is, who needs it, and when you should buy it.
Bradley Hilton says, “Being hit with unexpected and exorbitant bills for a nursing home or in-home care can ruin a great retirement plan if it’s not budgeted for or prepared for. Most people will need long-term care (LTC) at some point.”
Michael R. Acosta, Financial Planner at Consolidated Planning, adds, “Long Term Care Insurance provides nursing home care, home health care, and personal or adult day care to people age 65 or older or with a disabling chronic condition that requires middle-class people or those with a family history of medical conditions should plan to need long-term care insurance.”
Kevin Lao, Founder and Director of Financial Strategies at Imagine Financial Security, says, “If you ever need custodial care or long-term care, the insurance company will usually reimburse you for the related expenses, up to an amount daily or monthly.
Long-term care insurance has many parameters that determine your benefits and, therefore, your premiums.
These include the amount of the benefit and the duration of the coverage.
Hilton points out that the average duration of long-term care needs for men and women is 2.2 and 3.7 years, respectively. You can lower your premiums by only paying for three or four years of coverage. If you’re worried that your file will take longer than average, you can try saving elsewhere.
Kevin Lao says, “The average cost of a nursing home is north of $100,000 a year, or just over $8,000 a month. A policy that pays you that amount in full will cost a pretty penny. However, if you can afford it and the risk makes you lose sleep, do it.”
Next is the initial exclusion period, or how long you cover your long-term care costs before your benefits start. The longer the exclusion period, the lower the insurer’s risk, which lowers your premiums.
Timothy Bock, president of Summit Portfolio Management, said, “In my experience, a good way to save money on long-term care insurance is to have a six-month waiting period a year. For many people, (living) out of pocket for a year is very manageable.”
Another important element concerns coverage exclusions, or cases that allow the insurer to get out of trouble. For example, says Hilton, “policies may limit the conditions they cover. For example, it’s not unusual to deny care for alcoholism, drug addiction, or war wounds.”
On the other hand, Hilton says most policies cancel your premiums when you receive benefits.
Lao says, “If you want flexibility for home care and professional facilities, make sure your policy has 100% coverage for home care. I’ve seen 100% coverage for nursing homes or adult day care, with 50% home care, and the client has no recollection of why he purchased a policy like this.”
Both Acosta and Lao suggested considering another interesting option.
Acosta says, “Insurers these days offer traditional long-term care insurance and hybrid options. Hybrid options offer more flexibility, better value, and often guaranteed fixed premiums compared to care insurance. traditional long-term, which is not guaranteed.With hybrid coverage, the carrier often offers some form of death benefit (perhaps guaranteed), access to investment strategies in sub-accounts and a long-term care coverage pool.
Lao adds: “Some policies now have a hybrid life insurance component, where they pay a death benefit if you don’t use the policy or only use part of the long-term care benefits.”
The problem here is that long term care insurance policies have become more expensive over time.
Hilton explains why: “Premiums for long-term care insurance may increase over time. The insurer must obtain approval from state regulators to increase premiums, which happens from time to time.”
Laos offers five tax-efficient ways to cover long-term care.
- “Use tax-free money from your health savings account to cover long-term care insurance premiums.
- “Make a so-called “1035 exchange” of a life or cash value annuity. If you have accumulated cash in a permanent (not term) life insurance policy and do not have may no longer need the coverage in retirement, you could do a tax-free cash value exchange in a long-term care insurance policy.
- “The hybrid options mentioned above can protect your investment assets if you need long-term care. If you don’t need long-term care or you don’t exhaust your entire pool of benefits, the death benefit will be passed on to your beneficiaries.
- “If you don’t have heirs or they don’t need your inheritance, you can self-insure using tax-free withdrawals of assets from your health savings account. You can use distributions minimum requirements from your 401(k) or IRA (which you’d have to pay taxes anyway) or even a reverse mortgage.
- “If you can afford insurance but want to leave a financial legacy, you can purchase a permanent life insurance policy to replenish your assets when you die, even if you had to pay for long-term care towards the end. end of your life.
Most people would do well to consider at least long-term care insurance, especially starting in their late 40s or early 50s. However, after more than a decade of premium increases and benefit decreases, buying great coverage is nowhere near as possible or affordable as it once was.
