It’s an unpleasant thought, but the time may come where you can no longer function as an independent adult. Like any other machine, the human body starts to break down after a while. Your cognitive function can become impaired, and daily self-care can become overwhelming. In our culture of extreme independence, it may also be that you will not have an extended family to care for you when the time comes. Long-term care insurance can give you a way to provide for your future self if you need help.
Long-Term Care: What Is It?
Long-term care generally becomes necessary if you can no longer perform daily tasks by yourself. These tasks (which are known as activities of daily living) include bathing, eating, dressing, transferring from bed to chair, toileting, and continence. Long-term care would also be required if you have a cognitive impairment, such as Alzheimer’s disease. Care could be provided in your own home, a nursing home, or an assisted-living facility.
The Financial Commitment of Long-Term Care
If you needed this level of help, wouldn’t that cost a lot of money? Yes, it would. In fact, according to Genworth, a private room in a nursing home averaged more than $92,000 per year in 2016, and a home health aide averaged more than $46,000 per year. The cost could also vary significantly depending on where you live. Wow! It’s a good thing Medicare and health insurance will foot the bill, right? No, they won’t, because long-term care is not considered a medical expense.
Long-Term Care Insurance: Why You Probably Need It
Long-term care insurance lets you transfer the risk of paying for long-term care to an insurance company. The insurance will protect your assets by providing you with money to pay for a portion of the services needed if you can’t perform at least two of the six daily care tasks listed above. But long-term care insurance is not cheap. It is common for a policy premium to be far in excess of $3,000/year, depending on the features. The premiums can also increase without warning for those in the same “class,” as defined by the insurer.
You may think that you will be wasting money on those premiums for something you might never use. After all, you’re pretty healthy. Why not invest those funds and use it to pay for care as needed (self-insure)? If you skip the insurance and remain healthy (or place the burden on family members to take care of you), then you might leave your heirs with a sizable nest egg. But, remember that long-term care insurance is an insurance product meant to protect you against a worst-case scenario—one that you hope never happens. We readily pay for automobile and homeowners insurance even though we don’t plan to “cash in” on those policies, absent a costly accident. In this regard, long-term care insurance is similar.
A Reality Check
Because long-term care is a reality that many people will face yet have underestimated their need for, it begs the question: “Should you get long-term care insurance?” As with most financially related questions, the answer is: It depends. If you are either poor enough for Medicaid to pay for your care, or else rich enough so that you can self-insure against even large expenditures, then you probably don’t need long-term care insurance. But, if you find yourself in the middle, it makes sense to consider this type of insurance.
You will want to do research so that you can maximize the benefits while keeping costs reasonable. Keep an open mind and be flexible. Sometimes the best way to build a long-term care premium into your budget is to figure out how much you are reasonably willing to spend and then, with that amount in mind, to determine what options are most important to you. For example, to reduce costs you can choose a longer waiting period before benefits are paid out and not go overboard with coverage.
Inflation protection helps your benefits keep up with the rate of inflation. What if you buy the long-term care insurance policy in your 60s and don’t need it until your 80s? That’s 20+ years that inflation will erode the value of your benefits unless you paid for the inflation protection. And you can modify other options, as well, to get to your target number. For example, there are insurance products that combine life insurance with a long-term care rider that might offer fixed rates and not be subject to rate increases like the “stand alone” long-term care policy.
The decision whether to purchase long-term care insurance should not be taken lightly; it is highly advised that you consult an investment advisor who knows, or will get to know, your entire financial situation so they can help you make a decision that’s in your best interest. The investment advisors at Alpha Fiduciary in Scottsdale have staff knowledgeable about insurance and financial planning and would be honored to help you make a long-term care insurance decision that fits in your overall financial plan. Please call us today at 888-562-4033.