Protect Your Wealth: Managing the Risk of Long-Term Care

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From a financial planning standpoint, managing the risk of long-term care (LTC) is becoming increasingly crucial. As life expectancies rise and medical advancements extend our lives, the likelihood of needing assistance with daily activities or medical care increases. This can have significant financial implications, making it essential to consider strategies to mitigate these risks. One such strategy is long-term care insurance (LTCI). In this article, we’ll begin to lay the groundwork to help you to determine the risk of needing long-term care, and whether LTCI should be part of your financial strategy.

Understanding Long-Term Care

Long-term care refers to a range of services designed to meet the personal care needs of individuals who have chronic illnesses or disabilities. These services might include assistance with activities of daily living (ADLs) such as bathing, dressing, eating, mobility, or managing incontinence. They could also involve medical care for conditions that require ongoing treatment. The most common conditions that can lead to the need of LTC are strokes, cancer, Alzheimer’s and dementia, Parkinson’s, or multiple sclerosis.

Long-term care can be provided in various settings, including nursing homes, assisted living facilities, in-home assistance, or even adult daycare. The cost of these services can be substantial, and unfortunately, traditional health insurance and Medicare often provide limited coverage for long-term care services.

What Are the Statistics

The statistics do not paint a rosy picture for the Baby Boomer generation or future generations. Per Genworth in 2022, 70% of individuals 65 or older will require LTC during their lifetime. Women are more likely to need LTC as they live longer and are more likely to take care of a spouse in their home. As of 2018, 67% of LTC residents were women and their average length of stay in LTC facilities was 3.7 years compared to 2.2 years for men. Additionally, single retirees are twice as likely to enter LTC facilities than married retirees.

The Financial Impact of Long-Term Care

The financial burden of long-term care can be significant. According to the Genworth 2023 Cost of Care Survey, the median annual cost of a private room in a nursing home is approximately $108,000, and the cost of an assisted living facility averages around $60,000 per year. These costs can quickly deplete savings if not planned for in advance.

The unpredictable nature of long-term care needs adds to the financial risk. You may need care earlier or later than expected, and the duration and type of care required can vary widely.

Long-Term Care Insurance: A Risk Management Tool

Long-term care insurance is designed to help cover the costs of long-term care services. Here’s a closer look at the benefits and considerations associated with LTCI:

Benefits of Long-Term Care Insurance

1. Financial Protection: LTCI can protect your assets by covering the costs of care that you would otherwise need to pay out-of-pocket. This can help preserve your savings and ensure that your estate is intact for future generations.
2. Choice and Flexibility: Many LTCI policies offer a range of options for care settings and services, giving you more control over the type of care you receive and where it is provided.
3. Peace of Mind: Knowing that you have insurance coverage for long-term care can provide peace of mind, reducing stress about potential future care needs and the financial implications.

Considerations When Choosing Long-Term Care Insurance

1. Cost of Premiums: LTCI premiums can be expensive and vary based on factors such as age, health status, and the level of coverage. It’s important to weigh the cost of premiums against your overall financial plan and consider whether you can comfortably afford them.
2. Policy Features: Not all LTCI policies are created equal. Features such as benefit amounts, inflation protection, elimination periods, and coverage limits should be carefully reviewed. Inflation protection, for example, helps ensure that your benefits keep pace with rising costs over time.
3. Eligibility and Underwriting: Insurance companies typically require medical underwriting to determine eligibility and premium rates. Pre-existing conditions or health issues can impact your ability to obtain coverage or the cost of premiums.
4. Alternative Options: Explore alternative strategies for managing long-term care risk, such as self-funding, Continuing Care Retirement Communities (CCRCs), and maximizing a health savings account (HSA) if you have an eligible High Deductible Health Plan. Each option has its own advantages and potential drawbacks and can be used jointly or separately to cover LTC costs or reduce the financial burden of needing LTC in the future.

Is Long-Term Care Insurance Right for You?

Determining whether LTCI is appropriate for your situation involves evaluating your financial goals, health status, and personal preferences. Here are a few key questions to consider:

• What is your current health status, and do you have any conditions that might affect your ability to secure coverage or the cost of premiums?
• Do you have sufficient assets and income to cover potential long-term care costs, or would insurance provide valuable protection?
• Are you comfortable with the cost of premiums and the terms of potential policies?

Conclusion

Managing the risk of long-term care is an essential aspect of comprehensive financial planning. Long-term care insurance can be a valuable tool in protecting your assets and ensuring that you have access to the care you may need in the future. However, it’s not the only option, and it may not be suitable for everyone.

Carefully evaluate your financial situation, health status, and long-term care needs to make an informed decision. Consider reaching out to your Financial Consulate advisor to have an in depth decision regarding your potential LTC needs and options for covering associated costs. The earlier you begin planning the better and working with an advisor to review and update your plan because your plan at 50 may not necessarily work when you are 75.

Ultimately, the goal is to ensure that you are prepared for whatever the future may hold, allowing you to maintain your quality of life and financial security no matter what happens.

Financial Consulate aims to help lessen the worry and burden of wealth management and enhance financial wellness so our clients can pursue relationships and true fulfillment. Choose the professionals at Financial Consulate as your Certified Financial Planners™ (CFP®) to take advantage of our educational, ethical approach to financial planning. Our services are comprehensive, including tax planning, investment planning, retirement planning, estate planning, and more. We operate completely independently and offer fee-only services to keep your vision in line with our recommendations at all times. While we have offices in Hunt Valley, Maryland, Fernandina Beach, Florida, and Gettysburg, Pennsylvania, we serve clients across the nation. To begin your partnership with a trustworthy wealth advisor, please contact Financial Consulate today.