Why you may need to think about long-term care coverage

One of the greatest challenges when it comes to planning for retirement is trying to predict future healthcare expenses. Additionally, many people are living longer – well into their 80s or 90s – which makes the need for long-term care increasingly likely for many Americans. But the reality is that many people have not yet evaluated whether or not long-term care insurance is a good option for them.

What exactly is long-term care? At its most basic level, long-term care is defined as services a person might need at some point in life – usually, but not exclusively at an older age – to help perform  many of the activities of daily living. These services can be delivered in the home or in places like a nursing home or assisted living facility.

No matter what kind of long-term care you or your family member requires, there are potentially significant costs associated with it. According to the U.S. Department of Health and Human Services, the average cost of care in a private room at a nursing home for one year was $83,000 in 2010. It also reports that 70 percent of those turning age 65 will need some form of long-term care in their remaining years. Most of it may occur in the home where it is typically more cost-effective (but still expensive), while about one-third of Americans over 65 will require nursing home care.

Look beyond the numbers

All too often, the numbers alone aren’t enough to motivate people to consider planning for these costs in advance. After all, who doesn’t think that we’ll be able to beat the odds and not require expensive care during our lives?

Even if you feel like you can take the chance, there is a more important reason to consider obtaining some kind of long-term care protection – to help protect you from becoming a burden to your spouse, children or others who might be responsible for your care. Having some form of long-term care insurance gives you more options for care when you need it and relieves others of that physical and financial responsibility. The strain on those who find themselves in the caregiver role can be tremendous. Having an insurance strategy in place may help limit the stress on your loved ones.

The options available

Many have the mistaken impression that government programs like Medicare* will pay for their long-term care needs later in life, but Medicare only covers certain services and care, and only for a limited period of time. Also, Medicaid will likely only provide benefits once you spend down your assets.

You’ll likely need to consider a protection plan of your own. There are different ways you can approach long-term care coverage:

•     Self-funding – to do this, you need sufficient savings to cover potential future expenses, which can be several hundred thousand dollars. This isn’t a realistic or very reliable option for most people.

•     Traditional long-term care insurance – this provides reimbursement up to a stated daily maximum and for a set period of time for long-term care expenses you incur. It helps protect your personal savings from the dramatic impact of care expenses. Policies vary, so you need to seek the level of coverage that’s appropriate for you.

•     A combination policy – you also can consider a life insurance policy that includes a component that provides long-term care coverage.

While you’re considering your choices, be sure to fully read the fine print and understand the terms of the coverage available so you know what type of protection is right for you.

Choosing the right course

Before making any decisions, be sure to:

•     Determine if insurance is appropriate for your situation and if so, how much insurance is enough. First, consider the resources you may have available to help fund long-term care and understand the realistic costs for services where you live. Then determine what kind of coverage is best for you.

•     Understand that care costs in the future will likely be significantly higher than they are today due to inflation. You may want to ensure your policy addresses this.

•     Assess how long-term care premiums fit into your budget and your long-term financial goals.

If you determine that insurance is right for you, remember that the sooner you can purchase coverage, the lower the premiums will typically be. For help evaluating your insurance options or determining how insurance fits within your long-term financial plan, consider meeting with a financial advisor.

*Medicare coverage varies by state.

Source: Health and Human Services; http://longtermcare.gov/the-basics/

Jeff Mushen, MSF, CFP, ChFC, is a Financial Advisor and CERTIFIED FINANCIAL PLANNER practitioner ™ with Ameriprise Financial Services, Inc. in Edmonds, WA.  He specializes in fee-based financial planning and asset management strategies and has been in practice for seven years. To contact him, www.ameripriseadvisors.com/jeffrey.m.mushen.

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