A person turning 65 today has a 70% chance of needing long-term care services. With insurance premiums escalating and paying for nursing home and other care becoming more challenging, experts recommend financial planning. This should start when people are in their 50s.
Median yearly costs are alarming. These include $48,000 for care at an assisted care facility, $89,000 for a semi-private room in a nursing home, $50,400 for a home health aide and $48,000 for homemaker services.
Medicare does not cover long-term care although it provides limited coverage for skilled nursing care and rehabilitative serves related to some hospital stays. Standard health care in retirement will cost the average 65-year-old $285,000.
The most relied upon solution, long-term care insurance, has become too expensive for many consumers and has led to a 60 percent drop in sales since 2012. The average cost for a 55-year-old couple is $3,050 with a benefit value of $773,000 when they reach 85.
Existing policy holders may be able to negotiate with insurers. For example, they can seek lower premiums by agreeing to lower the policy’s built-in inflation adjustment or reducing the maximum per-day benefit or duration of those benefits.
Some experts also recommend a hybrid policy that combines LTC coverage with life insurance. These can be obtained with a new purchase or converting an existing whole or term policy. Insureds can use the death benefit to pay for long-term coverage which, however, reduces what their beneficiaries receive in many cases.
However, a potential insured must pass medical underwriting to obtain coverage. Some insurers require a lump sum payment before purchase while others allow the payment of premiums over years. Other options include annuities with LTC riders. For this coverage, a person makes a lump sum payment for an annuity that pays out a certain amount at a future time. But these involve higher fees than other investments.
A qualified longevity annuity contract is a somewhat similar plan. These are purchased from funds from a retirement account, such as a 401(k). At a future time, the purchaser receives guaranteed monthly payments for the rest of the person’s life. Other options include self-insurance and using real estate through a reverse mortgage or equity line of credit. An attorney can help with this planning and present reasonable options that cover these expenses.