Guidance

RESOURCES TO HELP SHAPE YOUR FINANCIAL FUTURE

In addition to typical medical expenses in retirement, you should also consider the cost of long-term care arrangements should you need professional care in your later years, either in-home or in an assisted living facility. There is a good chance you will need assistance, and it will not be cheap.

According to the 2011 MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs, the average annual cost for a private room at a nursing home in 2011 was $87,235. The national average for a semi-private room was $78,110. The national average for an individual living in an assisted living community was $41,724.

In most cases, long-term care health insurance coverage provides benefits for nursing homes, assisted living facilities, and home care. If you can afford the premiums, you may want to consider purchasing long-term care insurance. Here are some of the key questions to keep in mind.

How likely are you to need it?
This depends on your general health, family history, and expected longevity. For example, if your family has a history of serious medical conditions, dementia, or Alzheimer’s disease, you may have a stronger reason to consider this type of insurance.

What is your asset level?
Those who come into retirement with less than $250,000 in assets will probably have better uses for their money than paying premiums for long-term care insurance; they may also be eligible for Medicaid if they should need long-term care. Those with more than $2 million in assets may be able to pay for this type of care out of pocket. If your portfolio falls in the middle of this range, however, you may be a good candidate for this type of coverage.

What kind of coverage do you need/want?
The key differentiator in the pricing of long-term care insurance policies is the amount of daily benefit you are buying; you will obviously pay more for a policy that pays $150 of your long-term care costs per day versus one that pays just $100. You will also be able to specify whether you would like your daily benefit to step up with inflation; even though such a feature will cost you, it is highly advisable given that health-care inflation rates have been far outstripping inflation as a whole during the past few decades.

Another factor to evaluate is the total lifetime benefit. For example, a policy may cover $250,000 in lifetime long-term care benefits, or the lifetime benefit may be unlimited. Some policies are comprehensive, meaning the patient can obtain care in a variety of settings, from a traditional nursing home to care at home. Cheaper policies, however, will only pay for care in a traditional setting, usually a nursing home. Policy costs can also vary based on the length of your elimination period, which is similar in concept to an insurance deductible. If your policy has an elimination period of 30 days, for example, that means you will have to pay for any long-term care costs you incur in the first 30 days of your illness; after that period has elapsed, your insurer will pick up all or part of the tab, up to your daily benefit amount.

How would you like to pay for that?
Under a traditional long-term care policy, you make regular payments during the life of that policy. But you can also customize your payment program, paying for your policy in a single payment, over 10 or 20 years, or until you hit age 65. Such payment options allow you to front-load your payments and reduce your fixed costs in retirement.

How likely is the company to pay?
It probably is a good idea to check up on the insurer’s financial strength. Also ask your agent about the insurer’s history of raising client long-term care premiums. Although such maneuvers can improve a firm’s financial health, they can also present a financial hardship to the insured, a lesson many long-term care policyholders learned the hard way during the past few years.

 

©Morningstar 2011. All Rights Reserved. Used with permission.