For hundreds of years, people have been using the mechanism of insurance to ease the burden and uncertainty of various types of financial risk. Starting in the 1600s with the exchange at Lloyd’s of London, where financial backers pooled their funds to offset the risks associated with maritime commerce, and continuing to the present, when thousands of companies offer policies that provide benefits to offset the financial difficulties posed by loss of life, health, or property, millions of individuals and businesses understand the principle of using insurance to hedge the risks of the unknowable future.
But one area of potentially major exposure remains overlooked by many otherwise carefully constructed financial plans: long-term care. This need arises when a person is no longer to manage for themselves one or more of the so-called activities of daily living (ADLs), which include:
- Personal hygiene (bathing, grooming)
- Dressing appropriately without assistance
- Eating (able to feed oneself and maintain a healthy diet)
- Maintaining continence (ability to use the toilet without assistance)
- Transferring/mobility (getting in and out of the bed or a chair and walking unassisted)
Those who are unable to perform one of more of the ADLs require care, such as that provided by an extended care nursing facility (nursing home) or a home-health aide. But what too many don’t realize is that the cost for the professional care and assistance required, which can be quite expensive, is not covered by Medicare.
In 2018, for example, the national median cost for a private room in a nursing home was $100,375. For an assisted living facility, the cost was $48,000, and a home health aide cost more than $50,000. And costs have not gone down since then.
While most think of financial planning in terms of adequate savings and careful investment, as persons near retirement the reality of increasing healthcare costs—including the possibility of long-term care—must also be taken into consideration. In fact, according to the US Department of Health and Human Services, nearly 70% of those currently turning 65 will need long-term care at some point in their lives. For women, who statistically live longer in retirement than their male counterparts, the likelihood is increased.
For these reasons, long-term care insurance (LTCI) can become a valuable tool for protecting your retirement assets from being depleted by costs not covered by your other healthcare insurance. Though the premiums are not inexpensive, the cost can be greatly mitigated by purchasing a policy while still relatively young and healthy. Many experts recommend buying LTCI around age 55, but some make the decision even earlier, since LTCI, like life insurance, is less expensive for those who are younger and in better health. It’s important to weigh the cost of the premiums against the potential risk, since premiums must continue to be paid to keep the coverage in force. In recent years, some companies offering LTCI have developed policies that are a hybrid between LTCI and life insurance; if the benefit is not used for covering long-term care expenses during the lifetime of the insured, the policy pays a death benefit to the named beneficiaries upon the passing of the insured.
If you are concerned about the potential effects of long-term care expenses on your retirement nest egg, the advisors at Mathis Wealth Management can work with you to analyze your situation and review various options. Contact us to learn more or request an appointment.