Long Term Care Insurance

When financial planners model a client’s future assets, perhaps the biggest unknown is the potential use and cost of long-term care.  According Genworth’s 2018 Cost of Care Survey, the median annual cost for a private room in a nursing home facility is over $100,000.  The median annual cost for a home health aide is $50,000.

Of course, not everyone will have dementia or require a long stay at a nursing home facility.  In fact, Genworth’s survey noted that two-thirds of retirees may not have any sustained long-term care expenses (generally meaning longer than 100 days) while the other third could have costs exceeding $500,000 (per person).

Unfortunately, Medicare generally does not provide for what we are calling long-term care (Medicare will generally provide up to 100 days of rehabilitative care but only if the patient is expected to get better).  After that, the only time the government will assist with the cost is when the retiree has basically exhausted their financial resources – when Medicaid will step in to help.

Long-term care insurance can assist in meeting some of a future retiree’s long-term care costs.  These policies will generally cover a portion of the costs for a defined period, such as three years, greatly reducing a retirement plan’s future uncertainties.  There are also life insurance and annuity contracts that provide long-term care benefits.

Unfortunately, long-term care insurance can be expenses depending on the “bells and whistles” that are added.  In addition, during the past several years, it seems that several insurance companies have exited the market – with life insurance companies picking up some of the slack.

No one wants to have to use long-term care insurance.  Insurance is there for a financial hedge against the potential cost as well as provide some piece of mind.  The key question that everyone needs to ask themselves is whether it is worth providing a level of protection against one of retirement’s biggest unknown expenses?