Retirement planning is becoming a high priority for people over 50. Yet, many consumers don’t factor in potential long-term care needs when planning for life after retirement. What’s more alarming is that roughly 70 percent of people who live beyond age 65 will need some form of long-term care before they die. The likelihood of needing care goes up even more with age.
The costs of long-term care, which involves assisting individuals when they need help with daily tasks due to a chronic illness, injury or cognitive impairment, can be considerably high. The median rate for a private nursing home in the U.S. is nearly $84,000 a year. Home health-care costs can also be daunting, as these services are more than $44,000 a year, with the average hourly rate for a home health aide hovering around $19 an hour.
Long-term care options
Since the majority of Americans cannot pay for long-term care costs out of their regular budgets, many are forced to drain their savings because they didn’t properly plan.
Still, with rising care costs, finding ways to pay for long-term care can be a genuine challenge for many families. In general, Medicare, Medicaid, paying out of pocket and private insurance are the main ways to pay for long-term care. Before turning to the government for care, consumers should know that programs like Medicare and Medicaid are limited when it comes to covering long-term care costs. Medicare pays only for short term, skilled nursing home care after hospitalization and state Medicaid programs require recipients to spend down to the poverty level in order to qualify for assistance.
Choosing to self-insure, or paying out of pocket, is one option for people with enough assets to comfortably pay for their desired type of care. Equally, long-term care insurance is a viable alternative for those who would like to protect their families from financial, physical and emotional heart-ache. Other than choosing to self-insure, long-term care coverage is virtually the only safety net that will protect people from the risks associated with needing long-term care.
Four simple decisions
It’s common for people to avoid buying a long-term care policy because they believe it’s too complicated. Yet, most people don’t realize that investing in this type of insurance only requires making four simple decisions, which include a maximum benefit, a monthly benefit, an inflation feature and the elimination period.
Plans are based on a maximum benefit, or the total amount a policy will pay out. For example, consumers may purchase a plan for $100,000 or $250,000 in care. This number is usually based on the period of time benefits will be received. Buyers should consider at least a three-year benefit period, as this would cover the average stay in a nursing home.
The next decision involves picking a monthly benefit. This is the amount the insurer will pay out monthly or daily. To estimate future expenses, applicants should research prices for the care they would like to receive in the area they plan to retire. Most policyholders receive from $100 to $250 in daily benefits.
After the maximum and monthly benefits have been determined, buyers should consider inflation protection. This feature helps plans stay current with on-going inflation rates. Although these options can be costly, rates remain level as benefits increase each year.
The final decision is the elimination period, also known as the deductible or waiting period. This is equal to a period of time. For example, with a 90-day deductible, the policy-holder must cover the full cost of their care for the first 90 days. Many choose 90 day waiting periods because it helps keep premiums lower while limiting out-of-pocket costs.
When to buy
Many consumers don’t consider buying a long-term care policy until well after retirement. Nevertheless, insurance experts advise people to look into coverage whenever they begin to seriously plan for their retirement. In fact, the average age for new long-term care insurance applicants is 57. Prices are typically lower for these younger applicants because they are likely to pay premiums longer before collecting benefits.
Younger people are also less likely to be denied coverage, as age and health are two main factors that determine someone’s eligibility for this type of insurance. Young applicants qualify for good health discounts as well, which reduce premium costs and hold steady even if health conditions change later.
No one can predict their future care needs. However, developing a plan that includes long-term care insurance plays a key role in guarding against the unknown. Anyone thinking about buying a long-term care policy should check with an insurance or financial professional about choosing a policy that offers solid protection at an affordable price.
