Long-Term Insurance: Planning for Your Future
The old saying that says an ounce of prevention is worth a pound of cure has some serious relevancy to the long-term care issue.
That’s because the cost of long-term care is skyrocketing. If you’re middle-aged or older, and you haven’t prepared to meet those costs, you could get burned down the road.
Costs of Long-Term Care
Just how high is the cost of senior care, and what’s the demand for it?
According to the insurance web site LTCTree.com, the demand for long-term care is certainly at an all-time high:
- 75% of people 65 and older will eventually need long-term care.
- About 80 million Americans will turn 50 over the next 18 years.
- By 2020, due to the rapid retirement of Baby Boomers, approximately one in three workers will be faced with providing some form of long-term care for their Baby Boomer parents.
But the rising cost of senior care may induce sticker shock for older Americans. LTCTree.com also points out that the cost of a one-year stay in a nursing home, on average, is $80,850. In major metropolitan areas such as New York, that number can rise to $100,000.
Unfortunately, approximately 75% of American singles and 50% of couples spend nearly all of their retirement savings within in a year of living in a nursing home. That’s where long-term insurance can really help.
How Long-Term Insurance Works
In a word, long-term insurance is that ounce of prevention that prevents that pound of cure. By and large, any chronic or disabling condition that requires nursing care or constant supervision can trigger the need for long-term care services.
Its history is relatively fresh. Long-term insurance was introduced 30 years ago to supplement Medicare’s limited coverage for nursing home care. Today it covers a multitude of services for elders whose longevity outstrips their ability to care for themselves.
A typical policy covers nursing home services, but also home healthcare services, assisted living facilities, respite care, hospice care, adult day care, care advisory services, and medical equipment and home modifications.
That’s a full menu, which is why long-term care can be so expensive. According to the American Association for Long-Term Care’s 2009 Sourcebook, individuals seeking long-term insurance between the ages of 50 and 54 paid as little as $989 per year.
For those between 60 and 64 the lowest amount paid was $1,125. The Association pegs the average cost of long-term insurance between $1,800 and $2,000 a year, although annual costs of $3,000 or so are not uncommon the higher you go up the wealth ladder.
Is Long-Term Insurance Right For You?
What’s your best move in shopping for the long-term insurance policy that’s right for you?
First, make sure you need it. If you’re approaching retirement, and are low on cash and savings, you may not need long-term insurance. That’s because, with low savings, you’ll qualify for Medicaid, which can cover a lot of your long-term care costs (but not all of them).
Then make a list of the pros and cons.
For example, long-term insurance can:
- Prevent (or at least mitigate) your life savings being spent on senior care.
- Give you leverage in choosing the senior care facility that make sense for you. If you don’t have the insurance, and can’t cover the costs, then chances are you’ll have to take whatever senior care deal that’s on the table.
- Prevent you from having to tap your family for funds to cover your senior care costs.
- Any premiums you pay can be deducted on your taxes (via “qualified medical expenses”).
On the other hand, long-term insurance can also:
- Be a cost burden as you near retirement.
- Be unnecessary, especially if you have low income.
- Not cover all of your long-term care costs.
Like any personal financial decision, you need to do your homework and gather the data that you’ll need to make an informed decision. Past that, you’ll need to follow through with the payments every month so you’ll have no roadblocks when you need to cash in on your long-term insurance policy.
You won’t need long-term insurance soon, but chances are you will someday.
Written by senior finance expert Brian O’Connell.
