USNews brings us this simple report on the basics of long-term care insurance and the importance of taking this step to protect yourself.
Long-term care—particularly whether it will be needed, and how much it will cost—is enough to make anyone uncomfortable. That said, it’s also a topic that often generates lots of questions and is frequently misunderstood.
We spend a lifetime saving our money to provide ourselves and our loved ones with a sense of financial security in the future. Many of us have a great deal of our retirement assets tied up in qualified funds like 401ks and IRAs. It would be a shame if proper planning is overlooked and financial security is diminished by the cost of care. If income is needed to pay for care, keep in mind that these types of assets are subject to federal and possibly state income taxes.
And how much does long-term care cost for those who truly need it? The average cost of nursing home care in the United States now exceeds $70,000 per year, but varies widely from state to state, according to AARP.
For the most part, those who need long-term care are left to foot the bill on their own. Neither Medicare, nor Medicare supplemental coverage (“Medigap”), nor standard health insurance policies cover long-term care unless you are impoverished.
This is where long-term care insurance plays a critical role. Premium costs are based on your age and health at the time of purchase, so the younger and healthier you are when you purchase a policy, the lower the premium you’re apt to pay during the life of the plan.
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As you evaluate long-term care insurance, keep the following variables in mind:
Coverage parameters. Policies differ in the types of services they support. Choose a policy that best meets your particular needs.
Benefits payout. How much does the policy pay per day for care in a particular setting? How does the policy pay out? (For example, is the payout a fixed daily amount, as reimbursement for the cost of care up to a daily maximum?) Does the policy have a maximum lifetime limit?
Eligibility. Does the policy use certain “triggers” to determine benefits eligibility, such as the formal diagnosis of an illness or disability? What is the maximum issue age for the policy?
Women may need more. Women tend to live longer and may need additional coverage.
Finally, keep in mind that most long-term care policies sold today are federally tax-qualified, which means premiums paid and out-of-pocket expenses are deductible. Also, long-term care benefits received are not taxed as income up to certain limits.
Protecting the work of a lifetime sometimes means being willing to address the sensitive topics of mortality, old age, and infirmity. These may be inevitable issues for all of us, but we can at least prepare from a financial perspective, and in the process, leave ourselves and our heirs with a better future.
Doug Lockwood , CFP®, is a partner at Harbor Lights Financial Group, a full service wealth-management team that has been dedicated to assisting clients in the accumulation and preservation of their wealth for over eighteen years.