Is long-term care insurance worth the expense?
叠测听, JD, CFP
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Imagine you鈥檝e retired and you or your spouse develops a chronic illness that聽requires nursing home care or significant in-home aid. If you haven鈥檛 planned ahead, you could find yourself in a difficult financial situation.
Long-term care can be extremely expensive. A聽private room in a nursing home cost an average of more than聽$83,000聽per year in 2010, according to the聽. And the study found that home health aides cost an average of $21 per hour.聽To make matters worse, most long-term care isn鈥檛 covered by Medicare, most retirees鈥� source聽for health care.
So how do people pay for聽this enormous potential expense? Only about聽听产耻测听, according to a 2014 study by the Center for Retirement Research at Boston College. But in many cases, it鈥檚 a good idea to buy at least some coverage. Here鈥檚 why:
You might not qualify for Medicaid
Unlike Medicare, Medicaid will pay for long-term care 鈥斅爌rovided it takes place in a facility, not at home. However, you need to have depleted almost all of your assets to qualify, and you can鈥檛 just gift them all to your children. Medicaid has a five-year 鈥渓ook-back鈥� period, so it will still consider any assets you transferred during the five years prior to your application.
Self-insuring is expensive
In this case, your strategy is to聽聽by the time you or your spouse needs long-term care that you can pay for it聽completely out of pocket. But because this cost聽can be so high, this option is typically only feasible for high-net-worth individuals. For anyone else, deciding to self-insure means assuming quite a bit of risk.
Long-term care insurance gives you options
Long-term care insurance covers聽more different types of care than Medicaid does, anything from 24-hour care in your home or a facility to聽a few hours per week of聽in-home assistance.
, but there are ways of managing the cost. Instead of asking your insurance broker how much coverage you need, find out聽how much you can get for the amount you can afford to pay. You can also skimp on add-ons, such as inflation provisions. Then you can invest聽the money you saved by not buying a full-coverage policy and reserve the proceeds for聽co-insuring your risk.
Some is better than none
Many people are聽reluctant to purchase long-term care insurance because they feel they鈥檒l have wasted their premiums if they don鈥檛 end up needing the benefits. But you could apply聽this logic to聽听补苍诲听聽premiums, and聽most of us consider those policies well worth it. The premiums for long-term care insurance are more expensive than those for homeowners or life insurance, but the financial consequences of not having long-term care coverage聽are聽extremely severe.
The majority of Americans can鈥檛 afford to self-insure but are too wealthy to qualify for Medicaid. If you鈥檙e one of the聽families 鈥渋n the middle,鈥� you might feel unable to afford long-term care insurance premiums. But it鈥檚 much better to purchase some long-term care insurance 鈥� even if it鈥檚 not enough to cover all your potential costs 鈥� than none at all. At the very least, you should start planning head for this potentially staggering retirement expense.
聽is a fee-only financial planner with聽.
This story was originally published on .
