Long-Term Care (Protection Planning, Part III)
August 29, 2022
In the first two parts of our protection planning series, we discussed the importance of establishing disability and life insurance to protect your future, plus the “softer side” of safeguarding your wealth, family, business, and goals. With our third installment, we’ll review long-term care (LTC) and why it’s vital to your financial plan.
For many retirees, there’s no greater expense than long-term health care. Some clients pay between $5,000 and $10,000 a month, and with an average nursing stay of three years, you can easily spend more than $300,000 in one visit to an assisted living facility.
While most of us don’t want to imagine ourselves with chronic health conditions and physical limitations, it’s a very real possibility for most aging adults. Here are some vital stats you need to know about LTC and why it’s time to make this discussion a priority family affair.
How Likely Am I To Need LTC?
You might think you won’t need LTC, but before you make that assumption, let’s consider why someone might need these services.
The seven “Activities of Daily Living” is one method insurance experts use to determine if you qualify for LTC. If you can’t perform any two of the activities on this list for an extended period, the standards suggest you need assistance, including:
- Getting in and out of bed or a chair
What Does LTC Look Like?
Long-term care is a term that covers a vast range of services. For you, it could mean a medical professional that visits your home periodically or a family member that ensures you’re getting the proper medications. In more severe cases, you may have to move into an assisted living facility or nursing home for acute care. You have to think about how these circumstances fit into your long-term financial plan and how the average cost and time frames may affect your future.
From a planning perspective, most people need LTC around age 82 or 83, and the average patient uses it for roughly three years. There are exceptions, of course, such as people with Alzheimer’s who are in otherwise good health. These patients may need LTC for seven years or longer, while another person might break a hip and need services for just four months.
How Much Does LTC Cost?
A private room in a nursing home costs roughly $9,000 to $10,000 a month or about $120,000 a year. But remember — with inflation, that figure may only go up, and other factors affect that expense, like location. If you live in an area with a higher cost of living, expect to pay more for LTC.
For example, if you and your spouse live in the LA area and you both need care at the same time, prepare to shell out up to $720,000 in LTC costs. Hopefully, you accounted for those expenses in your protection plan. However, even if you don’t experience this worst-case scenario, average monthly costs are still prohibitive in Southern California, coming in at:
- Home health care: $6,000
- Assisted living:$5,000
- Private nursing home:$11,000
Check out this Genworth calculator to see your area’s average LTC cost.
How Do I Plan For LTC?
Many pre-retirees assume that Medicare will cover their LTC. Unfortunately, that’s not entirely true. If you meet certain conditions, Medicare will pay for certain extended support, but you can’t rely on it to cover all your costs. Here are a few facts to help clear up this misconception:
- First 20 days: Medicare pays 100%
- Days 21-100:You pay $194.50 per day, and Medicare pays the balance
- After 100 days: You’re fully responsible for your care
This means that you need to plan for these costs yourself, and the time to do it is while you have time and compound interest on your side. The best time to purchase LTC insurance is during your mid to late 50s. You want a plan in place 20-plus years before you need it, and you don’t want to wait until you start losing some leverage in your 60s.
Not everyone needs LTC insurance, however. If you have enough funds set aside and you feel confident self-insuring, that’s a viable option. Just make sure you’ve done more than incorporate this line item into your overall financial plan. Thoroughly stress-test it and determine if you have enough assets to accomplish your retirement goals, as well as extended health care.
Types of LTC Coverage
The cost of LTC coverage varies on several factors, like how long you want benefits, your age, where you live, and any health care issues. If you’re ready to retire, and you’ve saved, planned, and have a decent amount of assets but don’t have the money to pay for LTC costs if the need arises, you’ll need to buy a policy. Most people fall into this category, so let’s explore the two main types of LTC insurance:
Traditional LTC Insurance
These pay-as-you-go policies work much like car or home insurance. You make your monthly payment and hope you never have to use it. However, you’ll never recoup your premium if you don’t use it.
Hybrid LTC Policies
Hybrid policies are becoming more and more popular now. It’s technically life insurance with an LTC rider. One advantage to this type of coverage is that you can lock in your benefits after you pay your upfront premium for a set time — 10 years, for example.
Think of it like an investment bucket. If you’ve already set aside funds for future health care issues, this policy could be a strategic way to get additional coverage to help out. With this policy, you can decide to:
- Cancel your coverage and get a refund of your premium payments.
- Opt to use your premium as a death benefit for your beneficiaries — if you never use it.
- Use the LTC insurance if you need it. That’s why you bought it in the first place.
Don’t Plan Alone
In Part 2: The “Softer Side” of Protection Planning, we covered the importance of sharing your intentions with the key players involved in that plan. People talk about LTC insurance even less than life insurance because we don’t want to think about what would happen if we couldn’t care for ourselves, and LTC isn’t exactly inevitable.
Don’t let the thought of losing your independence keep you from having these conversations. It’s a distinct possibility, so talk about it now. Let your family know how you want to be cared for and where you want to stay. Do you want someone to come to your home, are you planning to go to a facility, or will family make room for you? Make sure to have all of these conversations now so you can have the coverage, financial resources, and willing people to help carry out your wishes.
Just as it’s important to include your family in conversations about LTC, you should also talk with a financial professional to ensure you’re considering all your options and don’t overlook any risks. Contact the financial service professionals at TriaGen Wealth and discover how our focused financial planning strategies can help create a lasting legacy for you and your family.