MONEY MATTERS: Coming to Terms with Long-term-care Needs

It’s estimated that 70 percent of people aged 65 and older will need long-term-care services at some point, either in a facility or at home. Alzheimer’s disease, dementia, strokes, and advanced osteoporosis are just a few of the age-related health problems that can require a lengthy stay in a high-cost facility.

The costs for long-term care are rising, and rates vary greatly by state and the type and level of care provided. The nationwide median annual cost for a private room in a nursing home was nearly $88,000 in 2014.

Charles Sims Jr., CMFC, LUTCH

Charles Sims Jr., CMFC, LUTCH

Some people mistakenly assume that Medicare or private health insurance will pay for long-term care if it ever becomes necessary, but the reality is that they do not cover the extended period of custodial care that many people will need. Families with substantial assets are unlikely to qualify for Medicaid, yet paying out of pocket for these services could quickly exhaust a lifetime of savings. A long-term-care insurance policy could help fill this financial gap.

How policies work

Long-term-care insurance will provide a contractual daily or monthly benefit for covered services (up to the policy limits). Benefit periods often last from two to six years but can cover a lifetime.

Benefits typically are triggered when the insured is unable to perform two or more activities of daily living (ADLs) for a certain period of time, or the insured requires supervision due to a severe cognitive impairment. Specific eligibility triggers and ADL definitions can be found in the long-term-care policy. An elimination period may apply (typically 0 to 180 days); therefore, policyholders may have to wait for a period of time before the insurance company pays benefits.

Because premiums can vary considerably depending on the type and amount of coverage chosen, it’s important to understand all the available options. Some people make the decision to purchase a long-term-care policy when they are in their fifties, because the fixed premium payments are generally less expensive and there is a reduced chance that an application will be rejected for health reasons. Married couples may be able to purchase a single policy with a rider that allows them to share benefits, which may be more cost-effective than buying separate policies.

Some long-term-care policies receive the same tax advantages as other qualified medical expenses. Up to certain age-based limits, premiums for long-term-care insurance may be deductible from federal income tax, and the benefits paid from a policy are not considered taxable income.

Are you confident that you could afford several years of care (for yourself or a spouse) and maintain a comfortable standard of living? A long-term-care policy could help prevent your retirement savings from being wiped out by the escalating cost of care and may ease the burden on your family.

Having private coverage in force may also broaden your options for care if you should need it, and possibly even keep you out of a nursing home by providing home care. Owning a policy that pays long-term-care expenses may also enable you to preserve and pass more of your wealth to your heirs.

(Charles Sims Jr., CMFC, LUTCF, is president/CEO of The Sims Financial Group. Contact him at 901-682-2410 or visit www.SimsFinancialGroup.com.)

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