long term care insurance

I hear from many people who have worked hard to build substantial retirement savings ask:

“If I have $5 million or more, do I really need long-term care insurance?”

It’s a fair question, but retirement savings and long-term care insurance are not competing goals. One builds your future, and the other helps protect it.

Here’s what to consider.

  1. Long-term care insurance is about more than nursing home care.

A solid policy can also help pay for care in your own home if you are unable to perform everyday activities such as bathing, dressing or getting in and out of bed, or if you develop a severe cognitive impairment such as dementia.

Nursing home care can approach $150,000 a year, while eight hours a day of home care can cost around $100,000 annually. Round-the-clock home care can cost several times that amount.

Even a sizeable retirement portfolio can take a serious hit if care is needed for several years.

  1. Insurance can protect both your assets and your retirement income.

Let’s say you buy a policy at age 50 with an annual premium of $4,000. By age 75, you will have paid $100,000 in premiums.

That is a meaningful amount of money. But compare it with what you may be protecting yourself from.

If long-term care costs rise by an average of 5% a year, care that costs $100,000 today could cost well over $250,000 annually in 25 years.

And that is just one year.

Paying a few thousand dollars a year for insurance looks very different when compared with potentially paying $20,000 or more every month for care out of pocket.

Even a policy that covers only part of the cost can substantially reduce what you need to withdraw from investments.

People often think of long-term care insurance as asset protection, but it can also be income protection. Your retirement assets help generate your future income. If you have to liquidate those assets to pay for care, you may also reduce the income they could have produced.

Long-term care insurance is really about deciding how much financial risk you want to keep and how much you want to transfer to an insurance company.

  1. The best time to consider coverage is while you are healthy enough to qualify.

For many people, the ideal time to explore long-term care insurance is between ages 45 and 60.

Waiting generally means higher premiums. More importantly, a change in your health could make coverage more expensive or prevent you from qualifying.

Your action plan:

  • Get quotes while you are still healthy.
  • Use surplus income to fund the premium when possible.
  • Reduce retirement contributions only if absolutely necessary.
  • Do not use your emergency fund to pay for coverage.

For quotes, I recommend Phyllis Shelton at GotLTCi.com. Phyllis is my go-to long-term care insurance expert. She and her team have helped many people determine how much coverage makes sense, compare insurers, and understand the options available today.

Worried about premium increases? Phyllis tells me that newer policies have generally been priced more conservatively than many older policies. There are also plans available today with guaranteed premiums that provide a death benefit if long-term care is never needed.

The key is to look at the premium in context. A few thousand dollars a year may seem expensive until you compare it with potentially paying hundreds of thousands of dollars for care later.

And finally — the mindset shift you need:

Right now, you’re hoping your retirement savings will be enough.

That’s not a plan.

The plan is protection first… then growth.

Do that right, and you don’t just build wealth.

You keep it.

 

Again, I recommend Phyllis Shelton at GotLTCi.com. I have received many thank-you letters from people who appreciated the guidance they received from Phyllis and her team—whether they ultimately purchased coverage or not.

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    Categories: Insurance, Long Term Care