Skip to content

Long-Term Care Insurance and Your Retirement

MP900430909At some point in your life, it is likely that you’ll need long-term care. It’s something we don’t like to think about, but the cost of not preparing for this expense can wreck retirement finances.

The U.S. Health and Human Services Department estimates that more than half of Americans turning 65 will need some kind of long-term care. It may be care provided in a facility or at home, but however the care is delivered, it will be costly.

CNBC’s recent article, “Not having long-term care insurance can be ‘the single biggest devastator’ of your financial plan,” reports that over 8 million Americans have long-term care insurance. However, the cost of that insurance is rising. This increase is because of several factors, including the fact that companies underpriced their policies for years and misjudged how many would drop coverage.

Because of those rising premiums, some individuals may choose self-insurance. That means saving a pool of money to earmark for long-term care. Coverage is also available through Medicaid, which has eligibility requirements.

Even with these increases, you should purchase some form of coverage. This is because not being insured can be the biggest devastator of a financial plan.

The rule of thumb has been to buy LTC coverage at age 55. However, it really depends on your situation. The big unknown is health, and the odds of being able to qualify for coverage at age 60 compared to age 30 or 40 is vastly different.

A traditional LTC policy will cover the costs of care for a certain period of time, generally up to six years. The amount of coverage is based on the average cost of care for your location. Most insurers offer it in the form of a monthly benefit, and possibly with some inflation protection.

There’s also a hybrid policy that covers long-term care costs but becomes life insurance paid to heirs, if it’s not used. Of the 350,000 Americans who purchased long-term care protection in 2018, 85% chose the hybrid coverage. It’s also called combo or linked-benefit. The big difference is price: you’ll pay more for the hybrid policy.

For people who have no assets, Medicaid is the solution, but the choices for care are not often ideal. For those who seek to protect their assets, an elder law attorney will be needed to use legal strategies for protecting the healthy spouse and assets. Applying for Medicaid while protecting assets requires advance planning, since there is a five-year look back period. Talk with an attorney beforehand.

Reference: CNBC (October 14, 2019) “Not having long-term care insurance can be ‘the single biggest devastator’ of your financial plan”