A comprehensive Cost of Care Survey that was carried out in 2008 concluded that the national average cost for long-term care is nearly $75,000 per year and even higher in some areas, rising to almost $100,000.
If your health deteriorates and you need care for a number of years after you have retired, these costs could have a serious impact on your savings that you have set aside for retirement and also impact on the size of the legacy that you plan to pass on.
The problem we all face is that long-term care expenses are not covered by health insurance. Medicare or TRICARE. With this in mind you need to consider Long-term care insurance as an efficient way of protecting your capital and assets.
Long-Term Care Insurance
There are mainly two specific types of long-term care insurance, the first is group insurance and the second is an individual policy. Group coverage is being provided by an increasing number of employers as an option, however few of them are prepared to subsidize the cost. If you are fortunate enough to be offered a group plan through your work you should make sure that it compares favourably with against an individual policy.
The general rule is that group plans are more limited in their coverage and have fewer options available and they also do not take into account individual circumstances that could be viewed in a positive light by insurers such as your marital status and general health record.
When is the right time to buy long-term care insurance?
As a general rule, it makes sound financial sense to consider taking out long-term care insurance between the ages of 45 and 72. The later you leave your decision in your life will affect not just your premium but you should also consider the following implications –
- You become exposed to greater financial risk all the time you are not covered.
- The price of coverage will rise significantly as you get older.
- Your health status may also change and you might no longer qualify for cover
If you have been fortunate and prudent enough to accumulate significant wealth, it may be worth considering self-insuring, which will involve bearing all or part of the costs of long-term care on your own. That may be appealing when considering the financial outlay on premiums be you should consider this option with great caution as the survey we referred to earlier also concluded that even with moderate inflation, the national average price for just two years of care could easily exceed $400,000 by the year 2030.
How to choose a Long-Term Care Policy
The main criteria for choosing a policy and a provider should mainly consist of the following points –
- Financially sound insurer. Critical when you consider the financial turmoil still going on throughout the world. A tested method of choosing would be to consider companies that received high ratings from credit rating agencies such as Standard & Poor’s.
- Inflation protection. Find a policy with benefits that are index linked to help keep pace with the increasing cost of care.
- A balance of cost and benefits. The elimination period is the amount of time you receive care before benefits commence. The longer the period you can elect to self-fund your care before the benefit is paid then the lower your premium will be.
- Lasting Cover. The general rule is that you should choose a policy with a benefit period that covers a minimum of three years of care. If you are a couple, you should look for a policy that provides blanket coverage that either one or both of you can use, which are often referred to as shared benefits.
The message is loud and clear, we are all living longer and in order to enjoy a comfortable retirement it would be wise to consider making plans for any care needs in later life whilst you have you currently have the earning potential in your working life.
Written by Jane Spencer a guest financial writer for Assisted Living Today