Is long-term-care insurance right for you?
It shouldn’t come as a surprise that health care costs are among the leading concerns on people’s minds as they near retirement.
Long-term-care costs can vary widely by the type of care and location. A single room at a nursing home facility will cost, on average, close to $88,000 per year, and a typical stay lasts approximately four years. Part-time in-home care by a home health care practitioner will cost considerably less.
Long-term-care insurance (LTCI) may be the answer. Like any insurance, it is cheapest to buy when the event you’re insuring against is likely to be far in the future. In other words, buy early.
Traditionally, LTCI has been best suited to those with a net worth between $250,000 and $2 million. They can afford LTCI premiums and have significant assets to protect for their families. Also, they do not possess adequate resources to self-insure. Until now, for individuals with a net worth above $2 million, the general rule has been to self-insure.
Today, because of rising long-term-care costs and an increase in life expectancy, this traditional approach to long-term-care coverage warrants reevaluation. In fact, everyone should at least consider LTCI for one or more of the following reasons:
To avoid being a burden: None of us wants our future health care needs to create a physical or emotional strain on family members.
One way to reduce the burden on one’s family — even the psychological impact — is to make sure long-term-care benefits are available. For some, such benefits mean a greater range of options. Families with long-term-care coverage tend to seek outside professional help sooner and with less family conflict. In addition, opportunities to remain at home with professional in-home care are enhanced.
Most people prefer to stay in the comfort of their own homes as long as possible. LTCI benefits often allow this to happen, as professional in-home care can be started sooner and provided at a higher level.
To protect family finances: People work a lifetime to accumulate assets. They build a net worth and spend a lot of money protecting assets against taxes, estate costs, and family issues. They plan for a happy and healthy retirement and hope to leave an inheritance to their families. However, many fail to plan for long-term-care costs.
Why is this? Some are unsure where to start the process or hope family members will help when the need arises. Others believe premiums cost too much.
This creates a financial dilemma. People want and need the long-term-care benefit but are unsure if the premiums are worth it, especially if cash flow is tight. Fortunately for high-net-worth families, the cost of premiums is less likely to significantly affect their annual cash flow.
Premiums may also be partially tax-deductible, which makes the insurance even more cost-effective. For these reasons, long-term-care insurance should at least be considered as part of a comprehensive strategy to protect family assets.
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To provide liquidity: Some business owners have significant net worth but minimal liquidity and cash flow. They may hold significant wealth in non-income-producing assets or assets that are difficult to sell due to tax consequences or an illiquid market. In these situations, long-term-care insurance can reduce out-of-pocket health care expenses and protect cash reserves for day-to-day living and business costs.
To obtain peace of mind: Numbers and dollars are important, but so is peace of mind. If you have a net worth over $2 million, you may be able to self-insure, but that doesn’t mean you necessarily want to self-insure or that it would be the best solution for you.
Families should work with their financial advisors to look at the risks, costs, and benefits involved and then determine if long-term-care insurance is a smart way for them to achieve peace of mind.
Tim Hazeltine is senior financial planner for BMO Private Bank, Madison.
BMO Private Bank is a brand name used in the United States by BMO Harris Bank N.A. Member FDIC. Not all products and services are available in every state and/or location. BMO Harris Bank and its affiliates do not provide legal or tax advice to clients. You should review your particular circumstances with your independent legal and tax advisors
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