Don’t neglect your long-term care insurance in your retirement planning

Nearly 70% of people will need physical or medical long-term care services in their lifetime, according to the U.S. Department of Health and Human Services. Many people underestimate just how much this type of care can cost, neglecting to plan for what can be a considerable expense.

In Miami, for instance, the median cost of six hours a day of long-term care services in your home is $4,385 a month. A private room in a nursing home is more than double that, with a median cost of almost $11,000 a month.

If you face a diagnosis of dementia or another condition requiring ongoing, around-the-clock care for many years, you may be looking at costs in the range of $250,000 to $300,000 a year. This unplanned expense can be devastating.

A common misconception is that long-term costs will be covered by Medicare. While Medicare will cover certain short-term nursing home stays and some long-term medical care costs, it generally does not cover care in the home, long-term nursing home care, assistance with activities such as bathing and using the bathroom, physical care or other long-term needs.

Any comprehensive financial plan should include a plan for long-term care. Otherwise, you or your family may end up bearing the brunt of what can be a substantial expense.

Long-term care insurance should be part of your comprehensive financial plan.

One of the most effective ways to plan for these potential costs is through long-term care insurance, which enables you to pass some of your risk to an insurance company. Having such insurance can offer financial protection, peace of mind, asset preservation and flexibility of care options, along with the ability to stay in your home for as long as possible while minimizing the potential burden on your family.

Long-term care insurance has changed significantly during the past 20 years, with both the market and the products becoming more favorable to the consumer. In the past, there were limited long-term care insurance options, but today many new products have come on the market to accommodate a variety of situations and planning goals.

It’s never too early to explore long-term care insurance as part of your financial planning.

There are many reasons to consider long-term care insurance well before you think you might need it. One reason is that younger, healthier buyers generally have lower premiums and more product options. Another reason is that you may become ineligible to purchase a policy if you develop certain medical conditions or injuries. Plus, portions of some premiums may be tax deductible for business owners.

Your mid-50s is typically a good time to start thinking about purchasing long-term care insurance. At this age, it may make sense to transition from disability insurance that only pays out until a certain age to long-term care that can potentially pay out until death. But there are also good ways to incorporate this type of coverage into financial planning when you’re even younger. In particular, it may be very cost effective to add a long-term care rider to your life insurance policy when you are young.

In the past, people were advised to wait until later in life to purchase long-term care insurance, because earlier product offerings did not have guaranteed premiums, and insurers often raised premiums significantly as policyholders aged. Many of today’s policies have set premiums that cannot be raised and offer guaranteed benefits. There are also options for individuals over 70 who aren’t in perfect health to add some long-term care insurance to their portfolios.

Payment for long-term care insurance is highly customizable. A knowledgeable professional can structure products with payment as anything from a lump sum to annual payments for the duration of your lifetime, or any number of years in between.

Long-term care insurance benefits are flexible.

In order to qualify to use long-term care benefits, you must either have a severe cognitive impairment or require assistance with two of the six “activities of daily living” (bathing, dressing, using the toilet, getting in and out of a bed or chair, eating, and continence.) Your own physician will help fill out the claims paperwork for the insurance company.

In some policies, benefits are paid out as cash, rather than as reimbursement for specific licensed skilled care. This type of policy offers more flexibility in how the benefits can be used. This may include paying a family member or housekeeper to provide informal care, renting or purchasing more suitable living quarters, purchasing supplies or other items that make your life easier, as well as formal care, a nursing home, assisted living or other expenses.

It is also possible to structure a long-term care policy so that benefits paid out are tax-free, even if some of the premiums were tax-deductible. Your tax and insurance professionals can advise you on this.

In addition, some long-term care products include a return of premium death benefit. That means that if less money was used in benefits than was paid in as premiums, the remaining amount will be paid out as a death benefit.

A family conversation about long-term care insurance may be in order.

Sometimes parents (and possibly their adult children) expect the children to provide unpaid care in the long term, and so neglect to plan for potential costs. This is often not a realistic plan. Even if it is, parents and children will benefit from thinking about just what they want such care to look like. Parents may prefer to protect their own privacy and dignity by having a professional assist them with tasks such as bathing and using the toilet. Long-term care insurance means funds will be available for that.

Long-term care insurance doesn’t need to be purchased by the person who may require care. Increasingly, children are purchasing policies that cover their parents. Often, siblings will collectively pay the premiums.

In addition to parent-child conversations and sibling conversations about their parents, spouses can also benefit from discussing their plans for long-term care. This can be particularly beneficial when there is a significant age difference between spouses.

If you already have a policy, explore whether it’s still the best option for you.

As long-term care products have become more sophisticated and flexible, regular policy reviews have become more important.

New options may better accomplish your goals. The interaction of your long-term care insurance with other types of insurance (such as life and disability), retirement planning products and other financial vehicles may be different today than it was when you purchased your policy. As with any financial planning tool, what worked well for you at a different point in your life may no longer be optimal. Consult with professionals who can review all of your financial planning holistically, who understand all of your insurance products, and who can help you assess how much coverage you might need.

If you have an older long-term care policy with a premium that is fixed and favorable, it may be a good idea to hold onto it, as premiums have increased substantially over the past decade. If you’re concerned that you don’t have enough coverage with an older policy, it may make sense to layer an additional policy on top of it. Again, a professional can help you understand how much coverage you need and how best to use your premium payments effectively within your financial plan.

Consider your plans for long-term care.

Never assume that you are too old, too unhealthy or too young to explore long-term care insurance. With the variety of products on the market today, a knowledgeable insurance professional can help you understand how much coverage you need and what type of coverage works for your financial situation and personal concerns. Not including the costs of long-term care in your financial planning can derail even the best plans.

If you don’t have long-term care insurance, you’re not sure if your current coverage is right for you or it’s been a while since you reviewed your policy, contact me or another one of our Kaufman Rossin Insurance Services professionals today. We can help you navigate the options and find the policy most suitable for your family’s needs.