Affluent people don’t worry too much about paying for long-term care; they can afford to pay for it. Those with no money, they qualify for Medicaid. What about the people who have worked hard and saved their entire lives? It is a 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, and for the majority of people, this can be detrimental to their retirement plans.
Kiplinger notes, in its article, “The Impossible Reality of Long-Term Care Planning,” that the long-term care insurance industry is in flux. Many companies are closing this part of their business because claims are much higher than expected.
While there is no easy and perfect solution, you can consider adding long-term care insurance to your retirement plan.
Most of us have a financial situation that could be ruined by the average event that leads to long-term care. 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 typical facility cost. However, given the high cost of long-term care insurance, it should be used to fill a gap, not to cover the entire expense. Don’t attempt 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 the likelihood of need and the dollar perspective, it’s expensive.
The life insurance industry recently introduced a hybrid universal life insurance with long-term care riders. This is a 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. Creating a plan before a crisis gives you and your family comfort. For more information on how Family Estate Planning Law Group can guide you through this decision making process, explore our website and contact us to schedule your consultation today!
Reference: Kiplinger (January 2, 2018) “The Impossible Reality of Long-Term Care Planning”