Consider care needs when nearing retirement
If you or your loved ones are nearing retirement and haven’t yet considered the possibility of long-term care needs, now is the time to start planning for that by looking into long-term care insurance.
Most tax-quali ed LTC insurance policies are set up to pay bene ts if and when you or your loved one have a cognitive impairment such as Alzheimer’s disease, or need assistance with two activities of daily living such as eating, bathing, dressing or getting in and out of bed.
The costs for LTC without insurance can be sobering to say the least. For example, according to a 2010 survey by the U.S. Department of Health and Human Services, the average monthly LTC costs to the patient were around $7,000 for a private room in a nursing home and $3,000 for care in an assisted living facility with a one-bedroom unit.
That can add up to between $36,000 and $84,000 a year, which is far beyond the scope of most American families to pay.
At a fraction of the cost, LTC insurance can mitigate that. For instance, according to a 2012 AARP report, the average LTC insurance premium across the country for those between age 55 and 64 was $2,200 a year for policies sold in 2010.
When looking at policies and the cost for premiums, there are three parts that should be your focus: the daily bene t amount, the length of coverage and your level of in ation protection.
Next, consider how much family support you realistically could expect, costs where you live and whether you would use other savings to supplement your bene ts.
Coverage periods typically range from two to six years, so if you select $250 a day for three years, you would end up with $273,750. If you used less than $250 a day, your bene ts typically would stretch longer than three years.
In ation protection is crucial, since most people will make their rst claims decades after buying coverage, so make sure your policy will increase in value by adding about 5 percent compound in ation protection. It may cost a few thousand more per year, but in the example above, that means that after 20 years, your $273,750 would be worth $726,343.
Practically speaking, this means that if you buy a policy at 55-years-old, you would pay around $2,065 a year for $162,000 in bene ts with 3 percent compound in ation protection, which would increase to about $330,000 in coverage at age 80, according to the American Association for Long-Term Care Insurance.
Two good options for types of policies include a stand-alone policy or a hybrid life insurance policy with an LTC rider.
Stand-alone policies are the standard, are designed solely and speci cally to provide comprehensive coverage for costs associated with LTC and provide a pre-determined bene t amount for a pre-determined period of time, as chosen by the individual. However, they can be expensive, acquire no cash value, the premiums may increase, and the underwriting can be time-consuming.
The second option that is becoming more popular is called hybrid LTC insurance, which is a combination of both life and LTC insurance. The bene t of this coverage is that either you use some or all of the LTC bene t in the policy, or else someone receives a life insurance payment, generally about 2.5 times the amount you pay up front. If you are concerned that the cost of LTC will be more than what you have saved, this can be an excellent choice.
You need to have a chunk of change available that you aren’t using for something else, though, because these are typically single-premium policies, meaning you write a single check for the coverage – and that check will likely be no less than $50,000, or probably twice that.
One more thing to think about: Life insurance payouts aren’t taxed since you’re essentially advancing a death bene t, so bene ts paid out to your heirs from this type of policy are income taxfree.
It’s never too late to make the move to LTC insurance, especially knowing Social Security isn’t going to cover you as you get older, and even Medicaid can put you on a waiting list when the time comes, and then it will typically run out after 100 days.
Call your agent for advice about what’s best for you, based on your age and risk, and get started now rather than later.
– Eric Lincoln
MORE INFORMATION
For life insurance and LTC options, contact New York Life insurance agent Barbara Forte at 227-5063, or email bforte@ft.newyorklife.com, or visit her website at www.newyorklife.com/agent/bforte.
