For Americans turning 65 today, there is a 70 percent chance you will need some form of long-term care at some point in your life.
But three quarters of Americans don’t have a long-term care insurance policy, many because they can’t afford them. One of the problems is that the policies are cheapest when you are young, but they don’t become a priority until people turn 60 or older. By then both age and health issues make it more difficult to qualify. “You never want it until you need it, but when you need it you can’t get it,” says Greg Hammer, president of Hammer Financial Group in Schererville, Indiana.
Without insurance, the costs of caring for a loved one can be enormous. According to long-term care insurance provider Genworth, costs depend on where you live, but the median cost of a semiprivate nursing home room nationwide is $90,156 per year, assisted living runs $4,000 a month, and home health aides average $4,385 per month.
There are, however, alternatives to fund your long-term care, though some may not be options for everyone. “It’s probably different for every client,” says David Curry, Principal & Co-Founder of East Paces Group in Atlanta.
Self-insure. Curry says his client are high net worth, so they tend to set aside savings separate from their retirement savings for medical costs. “We make it part of your financial plan,” he said.
Reverse mortgage. A reverse mortgage lets elderly homeowners take equity from their homes and receive a cash settlement or a monthly payment. The loan is paid back by when the homeowner passes away or no longer lives in the home, usually by the heirs selling the home.
Life insurance long-term care rider. “If client ends up in extended care, they can use it, if they don’t use it money it still becomes a legacy asset,” said Hammer. “You have to be healthy. As you get older, that’s one of challenges.”
Annuity with long-term care rider. You don’t have same medical requirement as life insurance, Hammer says. Benefits usually start in five years. “It may not cover all of your stay (in a facility), but even when those assets are exhausted, it still creates survivor income.”
Asset-based long-term care insurance. You pay an up-front lump-sum premium payment and basically buy two policies in one. One policy pays benefits for long term care if needed. The other pays a death benefit. If you don’t use it, the money is returned, Hammer says. But it can be even more difficult to qualify for these programs than a traditional long-term care policy. “You sacrifice the return on assets for your money, but it creates a benefit for long-term care.”
Life settlement. You sell your life insurance policy for cash. Anne Long, vice president at Lighthouse Life, says the company will appraise a policy based on a combination of your current health status, how the policy performs and whether it is issued by a carrier with high ratings. The company gives you cash for the policy, and in return, it will receive the death benefits. “An offer is made, and you accept it or don’t. It could create a pool of funds that otherwise a senior wouldn’t’ have to pay for long-term care.
“It also alleviates the ongoing premium of the life insurance policy,” she said. “Seventy-five percent of seniors 65 and older terminate life insurance policies because they can no longer afford them. They just walk away. Imagine if you own home and walk away after 29 years.”
Rodney A. Brooks writes about retirement and personal finance issues. His column currently runs in U.S. News & World Report. He has written columns on retirement for The Washington Post and USA TODAY. He has also written for National Geographic, Next Avenue and Black Enterprise magazine. He retired as Deputy Managing Editor/Personal Finance and retirement columnist for USA TODAY in 2015.
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