We all know that long-term care is important — but it’s often a discussion we overlook or put on the backburner. We think we will get around to addressing it someday or that circumstances will change. But long-term care planning is vital for everyone to consider. And it’s definitely an important part of any financial planning and retirement strategy.
If you are not sure where to start, why it’s important, or what strategies to consider, this discussion may help.
Understand the Importance
Let’s face it: Growing older is a fact of life, and healthcare concerns and ailments increase with age. According to the Department of Health and Human Services, 70% of individuals over the age of 65 will require at least some type of long-term care services during their lifetims, and 20% will need five years or more of care. A senior who turned 65 in 2015 could incur an average of $138,000 in long-term care costs, according to a 2015 study published by the U.S. Department of Health and Human Services.
You cannot count on Medicare to cover these costs, either, as the public health program coverage does not include long-term expenses. Medicaid does, but the financial restrictions are limiting — typically a person may have no more than $2,000 or so in assets in order to qualify (your home doesn’t count as an asset as long as you’re living in it).
In order to preserve the legacy you’ve built — and avoid being a financial burden to the ones you love — it’s wise to start thinking now about how you’ll address the cost of long-term care, should you need it down the road. We have found there are four main product types designed to help address these costs.
Long-Term Care Insurance
The most obvious place to begin is by looking at long-term care insurance which often helps some of the costs associated with assisted living facilities, nursing homes, and even in-home care.
But keep in mind, the policies can be expensive, and this type of insurance is rarely offered by employers. As a rule, the younger you are when you purchase the coverage, the cheaper it is. Most experts advise looking into it between ages 45 and 55.
In addition to being expensive, long-term care insurance can be difficult to get for those with troubled health histories. That’s why it’s smart to look into other insurance options. Easier to obtain than long-term care policies are short-term care policies, which may offer up to $50 to $300 per day for a set period of time, and critical care or critical illness insurance, which provide lump-sum payments to those diagnosed with heart attack, stroke, cancer and other illnesses.
The Annuity Alternative
Additionally, long-term care riders can be added to annuities to provide funds for long-term care. Medical requirements are less stringent, and it is possible for heirs to redeem any money not used for long-term care. However, upfront costs can be substantial — $50,000 minimum — and the money cannot be touched for five to 10 years after the annuity is purchased.
Similarly, a deferred fixed annuity starts to pay out distributions when a person reaches a determined age and those funds can be used for long-term care or other expenses. Another type of annuity offers a long-term care benefit where the usual monthly benefit is increased if the policyholder suddenly needs long-term care.
Life Insurance and Hybrid Models
Life insurance policies can be among the best ways to plan for long-term care, as many offer an array of options centered around allocating funds for a nursing facility or in-home services. A so-called hybrid policy, for instance, may combine life insurance and long-term care insurance. Long-term care claims can be paid tax-free and are deducted from the overall death benefit amount. Some policies allow the policyholder to walk away with the original deposit if they decide against a hybrid plan.
These policies can be an attractive alternative to “use it or lose it” policies dedicated solely to long-term care. The details of hybrid policies vary by plan and provider, but some allow couples to purchase coverage together. Some policies even pay benefits directly to the policyholder, rather than care providers, which allow greater flexibility in who you can hire to take care of you and what expenses are covered.
We trust you have found this information helpful, but it is only an overview. At Bangerter Financial, we believe every client’s financial plan should include a strategy to address the costs associated with long-term care. Please give us a call at 916-965-1879 for more insight or if we can answer any questions you have.
This is for informational purposes only. Fixed Annuities are long-term insurance contracts and there is a surrender charge imposed generally during the first 5 to 7 years that you own the annuity contract. Withdrawals prior to age 59-1/2 may result in a 10% IRS tax penalty, in addition to any ordinary income tax. Any guarantees of the annuity are backed by the financial strength of the underlying insurance company. Riders are available for an additional fee - some riders may not be available in all States.