Most Americans — the affluent included — cite major medical expenses not covered by their insurance as a major financial concern. As health care costs rise, long-term care insurance is increasingly becoming a greater part of the financial planning process.
At least 70 percent of individuals over 65 are likely to require some form of long-term care service during their lifetime, according to the United States Department of Health and Human Services. Such costs can be substantial. Genworth’s 2012 Cost of Care Survey found the median monthly cost for a room in an assisted living facility to be $3,300.
By helping provide for your care in cases of chronic illness or disability, you can help ensure your care and estate plans will be carried out according to your wishes. Without planning, a long-term care event can potentially wreak havoc on a retirement portfolio or estate plan, says Carol Goetsch, Senior Group Product Manager for U.S. Bancorp Investments, Inc., an affiliate of U.S. Bank.
One of the biggest mistakes is being unrealistic about how long the benefits should last and how much will be needed. Advancements in health care have allowed us to live longer, but living longer can have insurance policy implications. “The old school of thought was you only needed two to three years of long-term care benefits,” Goetsch says. “Now, it is recommended that you consider planning for three to five years.” She suggests talking to your financial advisor, as individual needs will vary based on your unique situation.
Failure to Plan
A common misconception is that purchasing long-term care will cover every expense should something happen, Goetsch says. In reality, there isn’t a way to entirely plan for a long-term care event. That’s because no one definitively knows if they will face a life-altering illness or a situation that requires long-term care. If they do need long-term care, there is no guarantee on how long they will need that coverage. Many people fail to plan because they don’t like to think about a potential long-term care event like serious illness.
It’s all about deciding the level of risk you are comfortable accepting. Do you want to help cover the bulk of the exposure with insurance? Or would you rather buy less insurance and use liquid assets and cash to cover costs?
“You can’t always mitigate the risk of full long-term care expenses,” Goetsch says. “The decision becomes how much of the risk you want to try to mitigate by minimizing potential exposure or if you want to rely on your assets.”