Long-term care is a critical part of anyone’s overall financial plan. As we age, the odds for long-term care increase significantly. Unless you have an excess of wealth, it makes sense to have a long-term care insurance policy.
Skeptics frequently say, “Well, if I take that money I was going to put into long-term care insurance, and invest it properly and earn X%, in 20 or 30 years, I might have the same amount of money that I would have in a long-term care policy.” That may be true, but they’re taking risks by forfeiting the structure, support, and stability of an insurance product.
The most appropriate age for someone to start thinking about long-term care is the late 40s to early 50s, even though they might not need it for 15-30 years. If you wait much longer, you’ll be paying higher premiums. The cost of long-term insurance will vary by carrier and geographic area. For those in the New York metro area, it will be more costly than most other areas.
Nursing home care is an important part of any long-term care package as nowadays most people prefer to stay at home if they are able to do so. My mother’s experience illustrates the stay-at-home aspect and necessity for long-term care as her care lasted for over five years, with each year costing over six figures.
In order for long-term care to begin paying out for these types of situations, insurance carriers work off a list called the activities of daily living (ADL):
- transferring (walking);
- and continence.
Benefits from long-term care policies are paid when someone needs assistance with two of those six ADL activities. If it’s only one ADL activity, benefits are not paid — it must be two.
As with life and disability insurance, everything is carrier-driven. There are many different combinations of benefits that you can get and share with your spouse. The benefits are put into pools, which the carriers call buckets. The variations are many, so the need for a professional to guide you is critical.
In addition to the pool of funds that builds up over time, there are carrier-specific, inflation riders that can be built into the policy that can increase the pool even more. Some carriers have an automatic cost of living increase added to your pool every year. For example, after 15 or 20 years of paying your premiums and/or having an automatic cost of living increase, your “pool/bucket” of money is significantly larger than when you started.
Another choice for long-term care is to have it as a rider to a whole-life insurance policy. One of the advantages of this is that you have the option to use a percentage of the cash available funds from the life insurance policy to pay for long-term care needs.
It’s important to have a professional consultation to discuss your specific situation.
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