Health Care Costs – The Storm Cloud Hanging Over Your RetirementSubmitted by Orange CA Financial Advisor | Sterling Wealth Partners on December 29th, 2016
Part 3 - Paying for Long term Care Costs
When it comes to paying for the costs of long-term care, there are now several options available. The financing decision should not be made in a vacuum and instead should be part of the comprehensive retirement income plan. Generally, because the costs of providing in-home or nursing home care are so high, transferring the risk via insurance is usually a cost-effective strategy. While most people are familiar with traditional long term care insurance, many are reluctant to purchase it, either because of the cost or because of the “use it or lose it” nature of the policy. Long-term care insurance is similar to other forms of pure insurance like auto and homeowners’ insurance in that benefits aren’t paid unless long-term care is needed. When people look at the cost of paying premiums over a long period of time and then not using it, they are reluctant to purchase it. Also, unlike auto and homeowner’s insurance which is typically required, long term care insurance isn’t a mandatory purchase, and can be subject to underwriting requirements.
In recent years, other types of products have been introduced that may be more flexible including hybrid long-term care / life insurance policies or annuities and life insurance policies that have long-term care or chronic illness riders. These types of products can provide long term care or chronic illness benefits if needed, but if not can provide retirement income or a death benefit depending on the type of product used. Consequently, they do not have the same “use it or lose it” structure of traditional long term care policies. However, they may not provide the same types of benefits either, and also require a purchaser to undergo underwriting.
In addition to transferring the risk through insurance, other options can include self-funding, buying into a continuing care retirement community and evaluating the availability of any governmental benefits. All the possible options available need to be considered and used in conjunction with one another to create a well-designed plan. Putting thought not only to your own personal long-term care plan but also the potential needs of your parents can help provide a more comfortable retirement while also alleviating the stress and family conflict that often comes from not planning.