It’s not the easiest thing to contemplate—you or a spouse, needing extended care in a skilled nursing facility that will consume a huge chunk of your retirement savings. However, like so many things in estate planning, pro-actively planning will provide you with options.
Super-wealthy people don’t worry so much about paying for long-term care; they can afford to pay for it. Those with no money qualify for Medicaid. But what about those of us who have worked hard and saved our entire lives? We need to consider the harsh reality that 70% of people over 65 years of age will need long-term care, according to the US Department of Health and Human Services.
Kiplinger notes, in its article, “The Impossible Reality of Long-Term Care Planning,” that the long-term care insurance industry is in flux, with many companies closing this part of their business because claims are much higher than expected.
While there’s no perfect, easy solution, you can consider long-term care insurance. The other option is to be very wealthy and pay out of pocket or try to qualify for Medicaid.
Most of us have a financial situation that could be ruined by the average long-term care event. The best bet is to transfer some of the risk to an insurance company. The issue then becomes determining the right amount. Many insurance agents recommend a monthly benefit that is aligned with the average facility cost. But given the high cost of long-term care insurance, it should be used to fill a gap, not cover the entire expense. Don’t reach to buy a policy you can barely afford today, because premiums can skyrocket.
As far as the type of policy, traditional long-term care insurance is the easiest to understand and the type everyone bought until a few years ago. While you’re covering a big risk from both a likelihood of need and a dollar perspective, it’s expensive.
The life insurance industry recently introduced a hybrid universal life insurance with long-term care riders. This is permanent universal insurance with flexible premiums. “Riders” are like guarantees. In effect, these are policies with set periods for the premium. You can pay for them all up-front or over time. Premiums are guaranteed not to rise, and if you don’t use the insurance, it will pass to the next generation as a death benefit. However, the death benefits are lower than they would be without the long-term care part, and the monthly benefit amounts are typically lower than they would be for the same amount in a traditional policy. Some will take this tradeoff for the certainty of knowing the amount of their premiums.
If you decide to purchase a long-term care insurance policy, make sure that you understand the policy. Do your research and speak with an elder law attorney before an emergency occurs.
Reference: Kiplinger (January 2, 2018) “The Impossible Reality of Long-Term Care Planning”