Q:
I'm 45 years old and have an elderly father who requires daily
home health care assistance. We've seen firsthand how quickly
long-term care costs can deplete retirement savings. What can I do
now to keep this from happening to my wife and me as we get
older--so we don't put our kids under greater financial burden
to support our care? I've heard about long-term care insurance.
Should we be looking into it? Or, is it too early?
A:
Actually, you're smart to begin thinking about long-term care
at your age. In fact, according to the American Academy of
Actuaries, 40 percent of those receiving long-term care are working
age adults ages 18 to 64 who've been put into that unfortunate
position by car or sporting accidents, MS, aneurysms, brain tumors
or strokes. At the very least, people need to seriously consider
long-term care insurance, as part of their overall financial
planning, by the time they reach 50.
What exactly is long-term care (LTC) insurance? While we're
healthy, it's easy to take for granted the normal activities of
daily living, such as getting out of bed, taking a shower,
preparing and eating meals, and driving a car. However, when you or
a loved one is stricken with a degenerative and chronic condition,
performing even the most basic activities becomes impossible
without the assistance of another person.
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Long-term care is not necessarily medical care, but rather
what's called "custodial care." Custodial care
involves providing an individual assistance with activities of
daily living or supervision of someone who is mentally impaired.
LTC can be provided in many settings, including nursing homes, your
own home, assisted living facilities and adult day care.
The cost of long-term care can be very expensive. Home health
aides cost on average $65,700 per year. Nursing homes average
$62,000 per year. So, LTC insurance is a proactive and often
practical means to cover the costs of care without burning through
your retirement savings or becoming a greater financial and/or
emotional burden on your spouse, children and grandchildren.
How much does LTC insurance typically cost? Premiums are based
on age, health and individual coverage choices. According to the
Long
Term Care Insurance Buyer's Advocate Alliance, there are
more than 3,000 possible prices for each person. For example, a
60-year-old applicant could get minimal coverage for about $60 per
month, while more comprehensive coverage can run as much as $12,000
per year.
There are three major areas that affect cost:
- Daily or monthly benefit: How much do you want your
policy to pay per day or month for your care? This usually means
choosing a daily benefit between $40 to $300 per day or a monthly
benefit between $1,000 and $8,000.
- Benefit period: How many years do you want your coverage
to last? For example, two, three, four, five, six years or a
lifetime?
- Elimination period: This refers to the number of days
you will pay for your own care before coverage kicks in. Waiting
periods of 100 days or less make sense for most people, while
shorter waiting periods like 20 to 30 days make more sense for
people with less than $100,000 in assets.
Here are four factors to consider when selecting a long-term
care policy:
- Financial strength: Make sure the company you select is
one that will be around when you need to receive benefits;
otherwise, you risk losing your policy if the company you bought it
from goes out of business. Look up ratings on the insurance
companies in your local library. Consult resources like A.M.
Best Book, Standard & Poor's, Moody's and Duff
& Phelps. And look beyond the ratings. Find companies with
billions--not millions--in assets. Choosing companies with larger
assets minimizes your risk of large rate increases.
- Sufficient daily benefit: LTC services are expensive,
ranging from $130 to more than $200 per day, depending on where you
live. Ask your financial advisor about average long-term care costs
in your area.
- Inflation protection: The cost of long-term care
services will increase over time. This is especially important to
consider when you have 20 to 30 years before you expect to receive
benefits.
- Comprehensive coverage: Choose a policy that gives you
flexibility in how you receive long-term care services, whether
nursing home, home care or adult day care.
When it comes to long-term care insurance, the younger you are,
the better and the lower your premiums will be. Therefore, the time
to look into long-term care insurance is when you're
healthy--not when you're sick and need it. Otherwise, you risk
not qualifying for coverage and having to pay out-of-pocket for the
cost of care.
For more information, consult these Web resources: www.longtermcareliving.com, www.longtermcare.com and www.aarp.org.
Phillip L. Pennartz, Ph.D., RFC, CSA, is a registered
principal with IFG Network Securities Inc. who helps individuals
and business owners build and protect their wealth in the areas of
retirement planning, college funding programs, estate planning and
long-term care programs. IFG Network Securities is a registered
broker/dealer and a member of the SIPC.
The opinions expressed in this column are those
of the author, not of Entrepreneur.com. All answers are intended to
be general in nature, without regard to specific geographical areas
or circumstances, and should only be relied upon after consulting
an appropriate expert, such as an attorney or
accountant.