Should Long-Term Care Insurance be Part of Your Retirement Plan?
Many people understand the basics of retirement planning: Save money, invest for the future and then make a withdrawal plan. Then you can add in Social Security and Medicare during your 60s. But many people are missing one essential piece of the retirement planning puzzle: how to pay for long-term care.
While Medicare covers many types of medical care, it generally doesn't pay for help with basic tasks such as bathing and dressing. Some older people also need help with household tasks such as cleaning, managing their money, cooking and grocery shopping. Long-term care is only covered by Medicare for short periods of time and under specific circumstances. Medicaid does pay for long-term care, but you need to meet low income and state eligibility requirements.
[See: 10 Medical Services Medicare Doesn't Cover.]
The U.S. Administration on Aging estimates that about 70 percent of people currently turning age 65 can expect to use long-term care at some point in their lives. As you get older, you become more likely to need long-term care.
Sometimes you will need long-term care because of a medical event. For instance, if you break your hip, you'll need both medical care and help with basic tasks around the house. In other cases you might become less able to manage your household and personal care over time.
Long-term care can be very expensive. The average cost of a semi-private nursing home room is $205 per day, or about $6,235 per month, according to the Administration on Aging. If you want to stay home, you can expect to pay a home health aide about $21 per hour. Even if you've done a great job of planning for retirement, those costs can rapidly eat up your retirement savings.
[See: 12 Free Preventive Services Medicare Provides.]
Retirees with low incomes might be able to get some help from Medicaid to pay for long-term care. Investors with some retirement savings, but not enough to shoulder the entire cost of a nursing home, need to make a plan to pay for longer term care. Some people choose to prepare for potential costs by purchasing insurance that will cover future care needs.
Long-term care insurance is a product designed specifically to help prepare for the costs of care in old age. Policies vary dramatically, but they're basically meant to cover the costs of facility-based or in-home long-term care when you need it.
As with most types of insurance, you'll want to shop around for a product that meets your needs and budget. Pay attention to your policy's terms and deductible, in particular. With some policies, you have to pay several thousand dollars out of your own pocket before the insurance kicks in. Other policies restrict your long-term care to certain types of care or facilities.
The costs of long-term care policies vary dramatically. Generally, the earlier you buy your policy, the cheaper it will be. Start looking into purchasing a long-term care insurance policy in your fifties, when you're becoming more likely to need it, but are still young enough to qualify for a relatively inexpensive policy.
[Read: Medicare Premiums Increase for Some Retirees.]
One potential option as you approach retirement age is to replace your term life insurance policy with long-term care insurance. If you've timed it right, your term policy will expire around the time you're no longer responsible for children in your home.
At this point, many people can afford to self-insure. If they pass away, no one is depending on their ongoing income to live. And if your home and other debts are paid off, you're in even better shape to drop your life insurance coverage.
When you get to this point, you might consider replacing your life insurance coverage with long-term care insurance. The costs may be a bit higher, depending on the type of policy you choose. But you can still replace one line item in your budget with another, so you don't feel the pinch quite as strongly.
Most people will need long-term care at some point in their lives. It's much better to prepare for the possibility of nursing home expenses or home care than to be unable to afford long-term care when you need it.
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