As you shape your personal wealth management strategy, there are certain possibilities you may want to plan for. Having future medical expenses — specifically long-term care — take a toll on your assets is one of them.
Consider the costs. According to the U.S. Department of Health and Human Services, nursing home care averages $6,235 per month for a semi-private room. The cost for a private room is even higher, averaging $6,965 monthly.
With the typical nursing home stay lasting just over two years, according to the Centers for Disease Control, the final total can easily run into the six-figure range. While Medicare covers a multitude of health expenses for seniors, long-term care isn't one of them, meaning these costs may have to be paid out of your own pocket.
“You work hard to save up assets for retirement living, and then a long-term care situation can quickly deplete those assets," says Chris Slonecker, Director of Affluent Market Strategies at FTB Advisors Insurance Services, Inc. Bearing the burden of longterm care expenses directly can impact your standard of living in the short term, while potentially leaving little to no assets to pass on to your heirs.
Medicaid can pay for long-term care expenses, but there's a catch. To qualify for Medicaid, you'd first need to spend down most of your assets. If you have a sizable estate, that may be even less appealing than paying for long-term care yourself. Fortunately, there's a third option: long-term care insurance.
Long-Term Care Insurance Advantages
Long-term care insurance is primarily designed to do one thing — keep you from draining your wealth to pay for nursing , assisted living, or home health care expenses later in life. A policy purchases a pool of money, say $300,000. If you need long-term care, the policy will pay out a certain amount daily or monthly to cover your expenses, over a fixed number of months.
Having long term care gives you more control over your health care needs than Medicaid. With Medicaid your options are limited in terms of location and types of facilities where it can be used. Not only that, but being insured can also relieve any worries you might have about leaving your children to manage your care and its associated costs.
Is Long-Term Care Insurance a Good Investment?
From the perspective of keeping your wealth intact, long-term care insurance can be a good way to achieve that goal. That doesn't mean, however, that it makes sense in every situation. For instance, you have to balance the cost of the coverage against the anticipated benefit.
Slonecker says that traditional long-term care insurance can be expensive, and the premiums are not usually guaranteed. If you're still paying the premiums in retirement, but your income is lower compared to your working years, maintaining your coverage could create a financial strain. You have some control over the costs because you can adjust your benefit amount, benefit period, or riders that are added to the policy, but forecasting how much your premiums may go up over time is virtually impossible.
The other big issue to consider is whether you'll actually use your long-term care benefits. Statistically, roughly half of Americans will develop a disability or illness that requires long-term support at some point. But what happens if you manage to remain healthy well into your later years?
Slonecker says knowing that you've paid a significant amount of money into something without realizing any benefits can be a hard pill to swallow. Still, he says, “a 50 percent possibility is certainly a risk you should insure against."
The Hybrid Option
If you're worried about not utilizing the long-term care benefit for which you've paid, a hybrid policy may be the answer. Hybrid policies combine a life insurance death benefit with long-term care benefits. Buying this type of coverage in a single policy may be more affordable than purchasing life insurance and long-term care insurance separately. You also have some reassurance that your policy won't go to waste.
Hybrid policies allow you to leverage your investment to pay for long-term care if you need to, or to provide additional assets for your heirs if you don't. This way, says Slonecker, you will get your money back. Not only that, but hybrid policies are permanent, meaning you can use them to build cash value that you could borrow against. In addition, unlike traditional long-term care policies, hybrid policies typically have guaranteed premiums.
Do Your Research
If long-term care or hybrid insurance sounds like something that could fit into your financial plan, it's helpful to know what to look for as you're comparing different policies.
Cost is likely to be your biggest concern, and it's certainly important to understand how much you'll pay in premiums for long-term care insurance. You should also consider how much coverage the policy offers and how long the benefit term lasts: Choose a term that's too short, and you run the risk of not having enough coverage. Choose one that's too long, and you may be paying for more than you need.
The challenge, of course, is that you can't know in advance what your long-term medical care needs will be. While the average likelihood that you will need to tap your long-term care benefit is roughly 50 percent, your personal odds will be either 100 percent or zero. You'll need the coverage, or you won't.
If you're married, you should also think about whether one or both of you need longterm care coverage. Slonecker says you may be able to find a joint policy that insures both of you. If one spouse doesn't use their full share of the coverage, the other can tap into those benefits to help keep long-term care costs at bay.
Still have questions about your possible long-term care insurance needs? Connect with a member of the FTB Advisors team today, toll-free at 1-800-238-1111.