Don't Overlook Long-Term Care
You get paid on Friday, and by Monday the money is gone.
Between paying bills, saving for college and funding retirement, there's rarely anything left.So the last thing you want to do is add long-term care insurance to your list of expenses.
But it costs money to get old these days. You could end up spending your life savings -- and your heirs' inheritance -- on your nursing-home bills.
Granted, you could rely on Medicaid, but you'll have to blow your life savings to qualify for that.
So it might be worth considering long-term care insurance. Paying for some extra insurance now could protect your money later. And long-term care benefits are tax-free. That means you don't owe Uncle Sam a dime when you start receiving the benefits.
How It Works
You may get to a point in your life at which you can no longer perform the activities of daily living. That means you won't be able to bathe yourself, cook for yourself or take care of your house because of an accident, illness or a chronic condition. So you'll need some sort of long-term care.
You'll then have to decide what type of care you want.
The national average annual cost of home health care is more than $20,000. And that's only for a home health aide at $18 an hour, five hours per day, for five days a week. That cost is expected to hit $68,000 by 2030.
Nursing homes are clearly more expensive. The national average cost of a semiprivate room in a nursing home is $52,000 a year, according to the Federal Long Term Care Insurance Program. Nursing-home costs have been going up at least 5% a year. If that continues for another 30 years, the cost of nursing-home care (for a semiprivate room) in 2032 is expected to be $190,600 a year.
If you think you'll have enough money to cover those costs and don't care about using it on your elder care, then you don't need long-term care insurance.
But if you want to preserve your wealth, then consider it. Especially once you hit your 50s. Unless you have a chronic condition that could become debilitating over time, you wouldn't usually need to start thinking about it before then.
Some insurance companies, however, will attempt to sell you a policy when you are as young as 40. But the coverage may be useless 40 years from now when you really need it, because who knows what 40 years from now looks like? There may be new methods of care available then that are not covered under aplan purchased today. As an example, assisted-living facilities weren't around 15 years ago -- so if you bought a long-term care insurance policy 20 years ago, those facilities wouldn't be part of your coverage.
Nevertheless, people in their 40s are thinking about it and purchasing plans, especially if they're currently watching a loved one drain their life savings on elder care.
And the sales agents will tout that you can save money if you buy young. As an example, in 2003, let's say you wanted a policy with four years of coverage that has inflation protection (we'll discuss this benefit in a minute) and will give you a $100-a-day benefit to pay for your expenses. That plan will cost a 40-year-old around $641 a year, according to a study done by HIAA, a national trade association that represents the private sector in health care. That same policy will run a 50-year-old about $849, and a 65-year-old-will end up paying $1,726.
But if you're not going to that nursing home until you're in your 80s, you're paying for 40 years before you ever need that policy.
What to Look For
Make sure you buy your policy from a company that has staying power. Remember, you need the company to start paying your benefits 20 to 30 years from when you buy the policy. Companies such as
MassMutual
and
John Hancock
have been around for years, so do some research first.
Make sure your policy covers nursing-home costs and assisted-living facilities, as well as care at home. You don't really know what kind of care you'll need until you get there.
Your benefits should increase with inflation, or have inflation protection, as the pros say. The industry standard is 5% a year compounded, even though nursing-home charges are expected to increase 5.6% annually, according to
Consumer Reports
. Your annual premiums will probably costmore if they have inflation protection included, but it's worth it.
The purpose of the policy is to cover your future costs, so make sure you're buying enough coverage. Try to figure out what the annual cost of a nursing home in your area would be at a time you'll be likely to be using one. Make sure your plan can keep up.
On the upside, many plans now offer a return-of-premium rider, which means that if you die and you don't use any of the long-term care benefits that you've been paying for over the years, the premiums will be returned to your estate.
This is a sensitive subject to discuss with yourself and family. But it's important to at least take the time to think about it. You don't want your heirs to have to pay for your health care costs when you get old. And you, most likely, don't want to blow your life savings paying for thosenursing-home bills, either.
So long-term care insurance may be a viable way to grow old gracefully and still keep some money in your pocket.
Tracy Byrnes is an award-winning writer specializing in tax and accounting issues. As a freelancer, she has written columns for wsj.com and the New York Post and her work has appeared in SmartMoney and on CBS MarketWatch. Prior to freelancing, she spent four years as a senior writer for TheStreet.com. Before that, she was an accountant with Ernst & Young. She has a B.A. in English and economics from Lehigh University and an M.B.A. in accounting from Rutgers University.