Money Talks, So Should You

Long-term care: DIY choices

Steve Higgins
by Steve Higgins, Dimespring Contributor

These two choices come less frequently to mind when the subject of long-term care comes up:

1. Buying long-term care insurance (LTCI). Long-term care insurance covers the cost of getting help with activities of daily living. Depending on the policy you buy, this insurance can cover home care, nursing home care, adult daycare, hospice care, assisted living and even respite care.

Premiums can be costly, though. A healthy 55-year-old may pay $1,084 a year for a standard policy, but the costs go up dramatically if the person has a health issue. The costs also rise rapidly with age: A 65-year-old with a health issue could pay $3,275 a year for the same level of coverage, according to “Best Age to Buy” by the American Association for Long-Term Care Insurance (AALTCI).

READ: Part 1: Why planning for long-term care in your 20s and 30s makes sense

The optimum time for most people to apply for LTCI is in their mid-50s, but buying early makes sense for many people. For instance, single people and childless couples may consider buying LTCI because they are less likely to receive care from family members.

But the main reason to consider buying LTCI in your 40s is your health status. People with chronic health problems such as diabetes may not qualify for LTCI, and those who do face dramatically higher premiums. If you delay applying, the likelihood that you may develop a health issue increases as you go through your 50s and 60s.

In 2011, 42% of LTCI applicants aged 40 to 49 qualified for good health discounts, compared with 32 percent of people aged 50 to 59, according to AALTCI.

READ: Part 2: Look at each long-term care choice in detail and do some number crunching

LTCI also offers tax benefits, and some policies allow you to protect a large portion of your assets from “spend down” provisions so you can qualify for Medicaid payments if needed.

If you are concerned about the premium costs, you may want to look into a new trend called “linked benefits.” Major insurance companies are offering policies that combine life insurance with long-term care benefits, according to AALTCI’s “Linked Benefits”. These policies transfer death benefit funds to pay for long-term care if the need arises. That way, if you never need long-term care coverage, your premiums are returned in the form of death benefits.

Still believe you’re too young to begin thinking about the potential need for long-term care? If so — when will you begin planning?

An alternative choice to consider:

2. Saving enough money to pay for your own care. This is a great plan if it works. As opposed to an insurance policy, you only spend the money on long-term care if you need it.
For this plan to work, you would have to include the potential cost of long-term care in your overall retirement savings strategy. It is a viable option, especially if you begin saving at a young age and consistently put aside a significant amount of your earnings. For an idea of how much you would have to save, consider this: The average private-pay cost of a nursing home stay was $88,000 a year in 2012, and  home care agency rates averaged $20 an hour, according to AARP’s “Long-Term Care  Insurance: 2012 Update.”

The question here is, are you a disciplined saver and investor? If not, this may not be the option for you.

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Steve Higgins became a freelance writer in 2007 after a 25-year career as a business reporter and editor for daily newspapers in Georgia, Florida, Arizona and Connecticut. To learn more about Steve, please visit www.higginswriting.com.