Discussing long-term care can be both emotionally and financially challenging. It is likely we have each had a family member (or multiple family members) that needed care in one way or another, as they grew older. How to plan for that care can be challenging, especially when you consider the cost for an average 2.8-year stay in a nursing home is $240,000, according to this CBS news article. You can never be certain that you’ll have a need for long-term care, but the best time to think about it is before there is a need.
It is natural for basic household activities to become exceedingly difficult as you age. The long-term care industry refers to these as activities of daily living (ADLs) and has defined six such activities: eating, bathing, dressing, toileting, transferring and continence. They also consider cognitive impairment an ADL. As ADLs become harder to complete individually, the need for care becomes increasingly transparent. Below we have outlined a few ways to plan for and help to cover long-term care expenses.
1. Set Aside Savings for Future Long-Term Care
Based on the statistic referenced above, you could need approximately $240,000 to cover an average 2-3 year stay in a nursing home. Throughout your working years, plan to build and contribute to your savings to aid in covering this cost. It is important to plan for retirement, but also plan to accumulate enough money to cover the cost of potential care. Cost of care does vary depending on location and services required. Consult with your financial advisor for the cost in your area so you can plan accordingly.
2. Consider Long-Term Care Insurance
Long-term care insurance is a specific type of insurance you can purchase to protect against these costs. The earlier you buy the coverage, the less expensive it tends to be. We generally suggest investigating this type of coverage in your mid 50’s. Typically, to qualify for insurance coverage, an individual must not be able to perform two of the six ADLs or have cognitive impairment (i.e. Alzheimer’s or dementia).
While insurance is certainly helpful if and when you need long-term care, it is not without its own set of risks. Firstly, the premiums can rise throughout the length of the contract. Secondly, if long-term care is never needed, all premiums that had been paid may be forfeited. Both of these scenarios can prove to be very costly for individuals and are important things to consider when planning.
3. Check Into Life Insurance Long-Term Care Riders
Recently, some insurance companies have begun offering a long-term care rider as an optional add-on to insurance policies. The goal is to provide financial benefits in the event that the insured is unable to perform two of the ADL’s and the insured requires daily care.
The insured may be able to use 90% of the death benefit while they are alive to cover the costs of their long-term care. In this scenario, the premiums paid will either cover the long-term care or provide the death benefit to beneficiaries. Since their introduction, these policies have become more popular, as the insured feels as if someone will benefit from the premium payments.
4. Second Guess Reliance On Family Care
For those fortunate enough to have family members who are capable of caring for and covering the costs of long-term care, relying on them is a suitable solution. However, be aware that relying too heavily on family can put a significant financial and emotional strain on them. We often suggest proactively planning for long-term care (i.e. savings and insurance) to help support your family, if that’s the route you choose.
Long-term care discussions can be very difficult. Be prepared for the individual who requires care to grasp their independence and be unwilling to relinquish it. We recommend having early conversations with the family to discuss the options before it becomes too emotional. This discussion has become more frequent amongst families and Trost Financial Consulting is available to aid in these conversations and planning needs.