Imagine that someone you know was diagnosed with a lifelong disease. Or perhaps they ended up at a hospital and in need of lengthy care and recovery. Your first thought would probably be, “I hope they will be OK!”
Unfortunately, for many families, the very next thought is, “How will we pay for this?”
That may sound unlikely to you now, especially if you are healthy. But the reality is that seven out of ten people over the age of 65 will require some form of long-term care (LTC), and the costs can be staggering [1].
According to a report from Genworth, the average cost of long-term care provided by a nursing home is currently $7,908 per month for a shared room and $9,034 per month for a private room. Even if you’re able to remain in your home and just need daily medical attention, the cost of home care is estimated to be $4,957 per month [2].
Many people are just one critical illness away from an enormous financial burden. For more than five decades, we at SYM Financial have helped our clients explore ways to pay for long-term care now — before it is needed. In this post, we’ll explain five commonly used options that we see considered. As an advocate for our clients, we don’t sell the insurance. We provide an objective review of the options.
5 Ways to Pay for Long-Term Care
Here are a few of the most popular ways to cover the cost of long-term care.
1. Long-Term Care Insurance
A long-term care insurance policy is designed to help cover the costs of managing a chronic, ongoing medical condition (such as Alzheimer’s).
Many expenses incurred during recovery or treatment are not fully covered by Medicare, and for some families a LTC policy can make a difference. That difference can come at a premium, as LTC insurance can be expensive. Additionally, some providers can deny you coverage if you have a pre-existing medical condition. So, if you are considering a long-term care insurance policy, it may be prudent to qualify while you’re in your 50s and 60s (with ideal age being 55 and relatively healthy).
2. Convalescent Insurance
Convalescent insurance (also called short-term recovery care insurance) is intended to help you manage the cost of staying at a nursing home facility temporarily. This could be due to an unexpected injury or a persistent illness.
Many of those who go into a nursing home quickly realize that Medicare will cover only 100 days of care in of rehabilitative care in a facility, which is why we like to use an elimination period of 100 days.
Convalescent insurance is typically less expensive than long-term care insurance. However, it typically provides no more than 12 months of coverage.
3. Critical Illness Plan to Private Pay
Various reasons exist among SYM clients for choosing to purchase or pass on some form of long-term care insurance. Some clients with the ability to self-insure instead elect to purchase coverage to protect the value of their estate for children and grandchildren.
One modification used by SYM clients is to insure only a portion of the anticipated need: for example, enough coverage to provide two years of care and any remaining costs of care will be funded from other assets.
Various other considerations may be used to alter the risk/cost profile, including adjustments to the average daily benefit (generally $100-$200), the Policy’s inflation rider (none, 3%, or 5%; the lower the inflation adjustment, the lower the premium), or the elimination period (90 days is standard, but pushing to 180 days can lower premiums).
4. Adding a LTC Rider to a Life Insurance Policy
Depending on the type of life insurance you have, you may have the opportunity to purchase an add-on feature called a “long-term care rider.”
This rider would allow you to use a part or all of the policy’s death benefit to cover the costs of long-term care, such as paying for at-home care or staying in a nursing home.
The cost of LTC riders can be around one to four percent of your death benefit. It may be beneficial to compare the cost of a rider with the cost of buying a separate LTC insurance policy. Keep in mind that any benefits that are used while you’re living will be subtracted from what your dependents can expect to receive after you pass.
5. Adding a LTC Rider to Other Insurance Products
Hybrid policies combine LTC with life insurance, effectively pre-paying the LTC care expenses via a large, one-time premium or annual premiums. Expect for providers of these policies to suggest various riders and benefits that may or may not be valuable, and that always come at added premium costs.
To weigh its pros and cons, consider the opportunity cost of the large, upfront premium. How could those dollars grow over 10, 15, or 20 years? An argument can be made for simply accumulating funds that would otherwise be spent on long term care insurance premiums, which could allow one to effectively create his or her own “self-insurance fund”.
Don’t Avoid Planning for Long-Term Care
Thinking through the details of how you would pay for your long-term care is a lot like retirement planning. The sooner you get started, the better. Time gives you an opportunity to find an option that fits both your budget and needs.
As you do your research, keep in mind that these policies can be complicated. There are many affordable options, but each one comes with its own set of fine print details and risks. Many people discover that bringing in their financial advisor, someone who knows the industry and who’s only stake in the game is to help you plan for your best outcome, helps to weed through the options objectively.
If you need help determining how you’ll cover the cost of long-term care, then schedule an appointment with a member of the SYM Financial team today.
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Disclosure: The opinions expressed herein are those of SYM Financial Corporation (“SYM”) and are subject to change without notice. This material is not financial advice or an offer to sell any product. SYM reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. This blog is for informational purposes only and does not constitute investment, legal or tax advice and should not be used as a substitute for the advice of a professional legal or tax advisor. SYM is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about SYM including our investment strategies, fees, and objectives can be found in our ADV Part 2, which is available upon request.
