Many people think wealth creation is what enables people to retire with confidence. In reality, what makes people confident in retirement is knowledge they have planned well for life's contingencies. Until you have an adequate plan for inflation, healthcare expenses, life expectancy, etc. etc. you can not really assess how much wealth you really need.
Long-Term Care Insurance is a difficult contingency to plan for because it's expensive, you are never sure if you will need it and in final analysis it may not make sense to own it.
Long-Term Care Insurance is for individuals who have lost their ability to live independently. This could be because of a disability or a prolonged illness (mental or physical). The insurance covers people that need help to carry out the six activities of daily living, which are dressing, bathing, toileting, continence, transferring (move from place to place) and eating. Typically you need to lose the ability to perform two of these six before coverage starts.
The average cost of a nursing home is $70,000 - $80,000 per year. Since it is so expensive, everyone should consider long-term care insurance as part of the retirement planning process. That is not to say everyone should buy it.
Here are three reasons to consider long-term care insurance:
Protect your assets: With this insurance you can avoid having to depend on other family members for your physical and financial well-being.
Medicare is not a solution: The cost of long-term care (without insurance) can wipe out your net worth in a hurry. Medicare is not allowed to be a long-term solution. Medicaid is an option but you only qualify for Medicaid once your assets dwindle to almost zero.
Act before health problems surface: The best time to buy long-term care is in your late 50's or very early 60's before premiums get too high or health problems keep you from qualifying.
Before you commit consider these statistics:
Sixty-Six percent of people will never enter a nursing home facility. There is a good chance you will never need the insurance you paid for.
Only nine percent of the people that enter a nursing home will stay more than five years. You need to determine if you think you can self fund this expense.
Eighty-Eight percent of the people entering a nursing home are at least 70 years old. Once someone enters a facility, only twenty-five percent return home.
If you draw conclusions from the above statistics you would conclude that you will probably never enter a home. If you do it will be after age 70, but your stay will be less than five years and it is unlikely you will return home. It would be reasonable to assume that self-funding would cost $250,000 in today's dollars and you could expect that figure to double in the next 10-15 years.
If you have a high net worth (greater than $1 million) you should consider self-funding. Once you are in a nursing home your expenses drop considerably in most categories. If you have a spouse you need to consider their ongoing expenses as well. All this needs to be weighted against premiums of $1,000-$2,000 per year depending on your age.
When you consider long-term insurance be sure you understand how long coverage lasts, how much money is paid per day and will that amount increase with inflation. Make sure the insurance company is solid (preferably AAA rated) and understand if the coverage is for more than nursing home care. Know how long you have to wait to receive coverage and are the paid premiums refundable at death if you did not use that amount as benefits.
Any decision with this many variables is difficult. This is a personal decision based on your own unique situation. If you spend time adequate time evaluating your options you will most likely make a smart, informed decision for your family... Good Luck.
No comments:
Post a Comment