PUBLISHED MON, OCT
14 20191:24 PM EDTUPDATED TUE, OCT 15 20199:21 AM EDT
No one
likes to think about needing long-term care.
Yet the
reality is that many people will at some point in their life.
About 60%
of those turning 65 can expect to use some form of long-term care in their
lives, according to the U.S. Health and Human Services Department.
That may include a nursing home, assisted living or in-home care.
Paula
Nangle understands the importance of having insurance to protect against such
an event. Her mother suffered from Alzheimer’s disease and had a LTC policy
that covered in-home care and eventually, a nursing home.
“We were
able to keep her in individual living for as long as possible,” said Nangle, a
certified financial planner with Marshall Financial Group, based in Doylestown,
Pennsylvania.
“She had
the opportunity to feel like it was a little more normal.”
Cost of care
More than
8 million Americans have long-term care insurance, according to the American
Association of Long-Term Care Insurance.
However,
the cost of that insurance is rising.
For
example, Genworth Financial received approval last year to increase premiums on
its LTC insurance business. The weighted average rate increase was 45%.
There are so many creative ways to buy it today that will fit into
your financial plan. Tom Henske, PARTNER, LENOX ADVISORS
The
increase is due to a number of factors, including the fact that companies
underpriced their policies for years and misjudged how many would drop
coverage, said Tom Henske, CFP and partner at New York-based Lenox Advisors.
Because
of those rising premiums, some may opt for self-insurance, which means saving a
pool of money to put towards long-term care. Coverage is also available through
Medicaid, which has eligibility requirements.
However, despite
the increases, Henske said he still advises clients to get some form of
coverage.
Not being
insured “can be the single biggest devastator of a financial plan,” he said.
Elder
care is expensive. The annual national median cost of a private room in a
nursing home was $100,375 in 2018, according to Genworth Financial. Assisted
living ran about $48,000 a year and a home health aide was $50,336 a year.
‘Don’t wait’
The rule
of thumb generally has been to purchase LTC coverage around age 55. However,
when to get it really depends on your situation.
Kent
Schmidgall, a CFP and wealth advisor at Buckingham Strategic Wealth in
Burlington, Iowa, bought his policy about 10 years ago — when he was 27 years
old.
“I view
insurance as important for protecting against catastrophic risks,” he said.
“I felt
like I had all of the catastrophic risks, such as premature death, loss of
income, the house burning down, liability due to a car accident …. taken care
of but one glaring risk: At some point, statistically, between my wife and I,
we are going to need care.”
While
younger people may be concentrating on other financial obligations, such
as paying off student loans, saving for retirement and getting life and
disability insurance, some experts advise addressing long-term care as soon as
they can.
“The
giant unknown ... is health,” said Schmidgall. “The chances of being able to
qualify for coverage at age 60 or age 30 or 40 is dramatically different.”
For
Henske, there is no better time than the present.
“My
biggest piece of advice is don’t wait to buy it,” said Henske, who purchased
his own policy when he was in his early 30s.
One
reason is his concern about the availability of insurance to new policyholders
in the future, thanks to increasing claims and low interest rates, which aren’t giving insurers
the return on their money they expected.
“There
are too many creative ways to buy it today that will fit into your financial
plan.”
Different options
A
traditional long-term policy will cover the costs of care for a certain amount
of time, generally up to six years.
The
amount of coverage depends on the average cost of care for your location. Most
insurers offer it in the form of a monthly benefit, like $6,000 a month, and
some may offer inflation protection. In other words, that monthly benefit will
grow with inflation.
If you
don’t want to lay out money for something you may never use, there is a newer
option: a hybrid policy that covers long-term care costs, but becomes life
insurance paid to heirs if it is not used.
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