By Randy Porzel, Lead Advisor at Private Vista
As I was changing my son’s diaper recently, I began thinking - 70% of people over 65 will need care at some point. This means, I have a high probability that these diaper changing roles may be reversed someday. I know I’d much rather leave this humbling duty to a professional caregiver.
For those that need care today in the Chicagoland area, the average monthly cost for In Home Services are $4,433/month. This seems like a bargain compared to Nursing Home Care cost of $7,239 for a semi-private room. With the cost of care growing by more than 3% per year, these costs are expected to rise to $5,958/month and $9,729/month respectively in 10 years. In 20 years, $8,006/month and $13,074/month respectively.
With regards to Long Term Care, people usually fall into one of three categories; 1) Can afford to self-insure, 2) Cannot afford the cost of care, but can afford the cost of insurance, 3) Cannot afford the cost of care or insurance. For the people that fall into the third category, the options are limited. They can either depend on family or find themselves in a Medicaid facility once all other assets are depleted. Even for the people that can self-insure, some choose to purchase insurance to preserve their estate, leaving more money for their children.
For those individuals that may not be able to afford the cost of care, but can afford the insurance today, here are a few things to consider when discussing Long Term Care insurance with your Financial Advisor:
- Monthly Benefit – how much of the monthly cost do you need insurance to cover? Assuming you have some retirement assets and social security / pension income, you may choose to insure a portion of the cost (i.e. $3,000/month).
- Benefit Period – the average stay in a nursing home is less than 3 years. If you have a history of Alzheimer’s or Dementia in your family, you may decide to look at plans that cover a smaller benefit for a longer period of time.
- Inflation Protection – with the cost of care increasing each year, it’s important to have an insurance benefit that increases with this cost.
- Elimination Period – once you qualify for benefits, when do payments begin?
- Payment Period – how long are you expected to pay for this insurance? You may choose to pay for the insurance for life, or may choose to pay higher premiums to have it paid up in 10 years.
- Death Benefit – if you pass away before needing benefits, would your family receive anything in return?
Most insurance policies begin paying benefits once a doctor certifies that you are no longer able to perform 2 activities of daily living: Eating, Bathing, Dressing, Toileting, Transferring (walking), and/or Continence. If you’re between the ages of 55 – 65, now is the time to have this conversation. Whether you choose to stay in your own home, or move to a facility, preparing for these costs is a vital part of a comprehensive Financial Plan.