Start Thinking about Long-Term Care in Your 50s—or Earlier
If your parent or loved one is at Bridgeway of Bensenville or considering an assisted living facility, you probably realize long term care costs a pretty penny. While Medicare will pay hospital stays and 100 days of skilled nursing, many elderly Americans require other kinds of care that insurance doesn’t cover.
Long-term care is not necessarily health care.
As we age our bodies deteriorate and we may lose the ability to care for ourselves. Even if you’re healthy enough to live at home, you many need a home health aide to help you with bathing, dressing, grooming, eating etc. These are called “activities of daily living,” or ADLs, and many seniors need assistance with them.
Medicare doesn’t cover this kind of help. Medicaid does cover home health aides and long term care in a nursing home, but you need to deplete all your assets before you can access Medicaid coverage.
If you want to preserve your assets for your heirs, and not be a burden on your family, you need to think about how you’ll cover your future long term care costs.
Long-term care is costly.
Statistics show one out of every two elderly Americans will need long-term care, yet most baby boomers have not planned for the care they will likely need in the future.
A semiprivate room in a nursing home in the Chicago area can easily cost $87,00 annually, while a room at an assisted living facility runs somewhere around $56,000 a year. A home health aide for just 44 hours a week can cost around $54,000 a year. In addition, there are many other bills seniors face on a regular basis, such as insurance deductibles, co-payments, and medication costs.
Most people don’t think much about the costs of long term care, incorrectly assuming their health insurance will cover everything. But this ignorance is dangerous: paying for just one year of long-term care impoverishes approximately 72 percent of elderly Americans. Many elderly Americans end up relying on family members to care for them or help them financially. Some end up depleting all their assets and going on Medicaid, which is much more limiting in terms of where and how you can get care.
Fortunately, there are options to help pay long-term care costs, but you need to plan ahead. Experts say the best time to start thinking about long-term care coverage is in your 50s. But it’s never too early to start planning how you’re going to cover the cost of your long-term care.
Option One: Long-term care insurance
Traditional LTC insurance is a policy separate from your health insurance that covers your costs when you need on-going care. It typically covers home, hospice, nursing home, or assisted living care. Premiums depend on several factors, such as your age and current health situation, how much coverage you want to buy, and what the average costs in your area are.
LTC insurance is not appropriate for everyone. The premiums can be very expensive, and some of the plans have benefit maximums of only five years or $250,000. If you or loved one need longer care than that, you may be on the hook for the costs. This kind of plan is best for someone who has a large amount in assets they want to protect. You may also consider LTC insurance if you have a family history of serious diseases, like Alzheimer’s disease, that require long-term care.
The problem with traditional policies is that they’re not very profitable for the insurance companies. Premiums keep rising and benefits keep reducing. Therefore, it’s important to find a financial planner or insurance agency that specializes in long-term care planning. Make sure you fully understand the risks and benefits of the plan before you commit to it.
Option Two: Life insurance with a long-term care rider
A rider is an option you can add on top of a policy. A life insurance plan with a long-term care rider attaches a policy covering your long term care. Traditional LTC insurance doesn’t have a death benefit—a payment to your beneficiary after you pass away. So if you don’t use your LTC benefits in a traditional policy, or you only use some of it, you won’t see any return on the thousands of dollars you paid into the policy.
With life insurance, the LTC insurance is tacked on for a slightly higher premium. It usually covers 50 months of long-term care, and your heirs will get a substantial payout when you pass away. This can be an affordable way to cover long-term care costs if you already have an active life insurance plan.
Option Three: Self-funding your long-term care
This option requires a lot of self-discipline and advance planning. But with a little foresight, you can build a nest egg large enough to cover your future long-term care costs. You can use your home equity—the value of your home after the mortgage amount has been subtracted. Particularly if you paid off your mortgage, your home equity can be quite substantial. Using your home’s value, you can cover your long-term care by taking out a home equity loan or reverse mortgage.
You can also self-fund your long-term health needs with an annuity or HSA. These are all options to discuss with your financial planner, who can help you make the best decision for your long-term care.