By:  Henry VanBuskirk, CFP®, Wealth Manager

A goal that many Americans have when approaching retirement is finding that “forever home” to enjoy their golden years in. When a loved one does pass away, they typically want to pass away in their own home. One of the main expenses that occurs during retirement is healthcare and this is typically an expense that increases with age. 

A big culprit of this increasing expense is the need for long-term care coverage that is generally not accounted for in a personal financial plan. Many Americans believe that Medicare can cover this expense, however this is not the case. Statistically, you are likely to need Long-Term Care Insurance at some point in your life. Not accounting for this type of coverage can mean that your “forever home” could turn into a “temporary home”, that could mean you would be spending your “twilight years” in a nursing home. Fortunately, there are ways to help mitigate or eliminate this threat from your financial plan so that you can live out your golden years in your own home.

What can Long-Term Care Insurance cover? Long-Term Care Insurance can help cover qualified medical expenses that would be incurred by a person who is not able to do at least 2 of the 6 activities of daily living (ADLs) which include:

1. Bathing
2. Dressing
3. Grooming
4. Toileting
5. Transferring from bed to chair
6. Feeding oneself

You can imagine that if you aren’t able to do at least 2 of those 6 items, that you would need a healthcare worker or family member to help you with most everything for the remainder of your life. If you have a family member that would be willing to do those tasks for the remainder of your life, then more power to that family member. Even if you have a family member, you could still run the risk of having that family member who is 5’2” and 120 pounds, trying to help someone who is 6’4” and 300 pounds and not being even able do those tasks. If you would rather pay someone to do those tasks, then the cost for staying in your own home is not cheap. In 2030, the expected monthly cost is $7,986 for in-home care for an average American.

Two options that Americans have so that they can stay in their home even when a long-term care need arises are:

1. Have enough money saved up so that this monthly cost wouldn’t be a concern. However, a good majority of people cannot afford an extra monthly expense of $7,986 for years. This would be considered “Self-Insuring”. If you can afford it, great. If not, you’ll have to sell personal assets to meet this need.
2. Buy a long-term care insurance policy to cover some or all the cost that would arise during a long-term care need.
   • If you cannot do at least 2 of the 6 activities of daily living (as confirmed by your physician), then you may be able to receive a tax-free benefit from the policy for a stated number of years.
   • The payments would be received in the form of a reimbursement or an indemnity. A reimbursement policy would only pay out the actual cost of the care, while an indemnity policy would pay a stated maximum daily or monthly benefit.

Many readers would believe that Option 2 sounds good, but one shouldn’t be quick to jump to conclusions. Purchasing long-term care insurance can be expensive, usually costing $8,000 – $12,000 per year for adequate coverage. That cost generally also increases during the life of the policy and there is a chance that you’ll never need long-term care anyway. 

Our team is available to discuss this in further depth if you have any questions and to evaluate if long-term care insurance makes sense for your current situation.

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