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The subject of long-term care is getting a lot of press these days. But many people still aren’t aware of the realities relating to this important issue and what it can mean for their financial future. For instance, do you know what the odds are of needing long-term care? Do you know where you can get care and how much it costs? And what about buying long-term care insurance? Knowing the facts can help you make the best decisions, whether for older relatives or for yourself.
Fact #1. There’s a good chance you or someone you love will need long-term care. It’s estimated that half of all Americans will need long-term care in their lifetime. The longer you live, the more likely you will need care. Four out of every 10 people who turn 65 will need a nursing home or other form of extended care. Statistics show that 22 percent of people 85 and older are in a nursing home at any given time. Working age adults can also need ongoing care – because of spinal cord injury, muscular dystrophy, multiple sclerosis, arthritis, heart disease, stroke and other conditions. In fact, 40 percent of people currently receiving long-term care are under age 65.
Fact #2. The cost of long-term care services can be staggering, wherever you receive care. According to the Met Life Mature Market Institute, the price of a nursing home stay today averages more than $61,000. With the average nursing home stay now averaging 2½ years, that’s a lot of life-time savings. The cost of at-home care, which most people prefer, can run as high as $36,000 a year and more. Kiplinger’s estimates that if you need round-the-clock care from a nurse, you’ll have to pay more than $300,000 a year! More bad news – costs are expected to quadruple in the next 30 years, meaning your children will face an even greater financial burden if they need extended care.
Fact #3. Most of the time, you pay out of your own pocket.Many people mistakenly believe that their life, health or disability insurance will cover the costs of long-term care. Or they think (or hope) the government will step in to pay. Unfortunately, neither is true. Medicare pays for just under 12 percent of all long-term care in the U.S. today, and covers only skilled or acute nursing care. Medicaid requires you to “spend down” assets to poverty level before it will cover long-term services. And because health, life and disability insurance usually don’t cover these expenses, it’s families who bear the financial burden. Currently, individuals pay for more than 30 percent of the nation’s annual costs for nursing home and home health care. As a result, many families are forced to deplete their life savings to pay for the cost of care.
Fact #4. Long-term care insurance might be right for you. For many people, long-term care insurance is the solution to this costly problem. But not for everyone. It’s a decision that should be based on individual circumstances – including age, total assets, marital status and financial philosophy. The prevailing wisdom is that wealthy people can use their accumulated savings and investments to pay for care, and that people with no nest egg can usually qualify for Medicaid. But what about the people in between? The United Seniors Health Council says that LTC insurance is probably a wise investment if you have annual retirement income of at least $25,000-$35,000 (at least $35,000- $50,000 for a couple), own assets of at least $75,000 (excluding home and automobile), can comfortably pay the premiums and can afford possible premium increases.
Fact #5. It’s cheaper to buy young. If you decide LTC insurance is right for you, most financial planners recommend that you purchase it sooner rather than later, preferably in your mid-50s to early 60s. Wait longer and the cost of your policy will escalate sharply, or you may develop health problems that will make you uninsurable. If you postpone purchasing coverage until age 60, for example, you may have to pay annual premiums almost 2-1/2 times higher than someone who buys at age 50. Financial planners also recommend choosing the inflation protection option to make sure your daily benefit keeps pace with inflation.
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