Statistically, You Probably Will
When we plan for retirement, there are more than a few uncertainties. At first, you might think that you can take care of unplanned expenses with a rainy day fund, but it depends on the complexity and magnitude of any unforeseen costs. According to Morningstar, 52.3% of people turning 65 will have a long-term care need during their lifetimes. That’s more than every 1 in 2 retirees! The average couple is likely to have at least one partner with long term care needs.
Long Term Care Insurance Is Becoming More Expensive
Unfortunately, long term care insurance is in a difficult period. In 2000, 125 insurers offered long term care, but that number dropped below 15 insurers in 2014. Insurers withdraw available plans that don’t meet their profit margins. This is based on the cost for the insurer to offer coverage and they make sure to ask you about your health, in order to determine a premium.
It’s Hard to Obtain Long Term Care Insurance
Regardless of financial situation, about 17% of applicants in their 50’s were denied long-term care coverage due to health issues. In your 70’s, that figure rises to a 45% denial rate.
Considering how many people need long term care, there is a large deficit in insurance care coverage. Long Term care insurance is not the most profitable for insurers and because so many insurers have moved out of this market, premiums are becoming more expensive.
Can I Afford Long Term Care Insurance?
The average annual premium was $2,772 in 2014 and reduced competition in the marketplace allows insurance companies to continue raising rates. Any medical events or changes to your history can negatively impact your premium, in addition to your ability to obtain insurance, initially.
Can I Afford To Be Uninsured?
When it comes to long term care in your retirement, it’s important to consider your health. Do you have any familial conditions that are likely to require long term care, such as Alzheimer’s, Parkinson’s, or Dementia? Do you plan to move into a nursing home or retirement community?
If you think you will need long term care, the benefits of coverage usually exceed the costs. If you invest the average long term care insurance premium for 22 years, you will only accumulate enough to pay for six months of care (LTC Consumer). However, when insurance is obtained, the same policy could cover up to 3 years of long term care. Depending on where you obtain care, long term care insurance reduces out-of-pocket costs by $3,000 – $5,000 per month.
Make Sure You Have The Right Coverage
If you choose to get long term care insurance, make sure that you obtain the right coverage. Some people opt for lifetime coverage, while others only want their insurance to cover living expenses in a nursing home, or retirement community. Your stay may be short or long, but odds are you will have some significant expenses.
Morningstar found that the average person over 65 will need 2 years of long-term care in their lifetime. Usually, women need more long term care because they tend to live longer. As a result, the average nursing home stay is 0.88 years for men and 1.44 years for women.
The cost of these stays varies dramatically by location and care facility. In 2016, the median annual nursing-home cost was $92,378. At the cost of an average premium, it would take you just over 33 years to pay insurance an equivalent amount and you would save money with an insurance plan. In a city like Manhattan, you would pay closer to $164,250 per year for a single room. Nursing homes are also known to increase rates to keep up with inflation and avoid over-crowding, so these living costs aren’t expected to go down. Maybe that’s why 99% of new long-term care policies covered nursing home and in-home care in 2014, as opposed to only 37% in 2000.
Better Late Than Never
If you anticipate the need for long term care and can afford long term care insurance, then its better to apply at a younger age. Any changes to your health history can cause you to get denied by insurance companies and it’s harder to obtain coverage at a later age. Long term care is costly, but insurance can reduce those costs substantially, particularly when it comes to nursing homes and rehabilitation from physical injuries at a Skilled Nursing Facility (SNF). Medicare doesn’t cover your expenses for a health care facility and it is all out-of-pocket when you aren’t insured. Medicaid won’t cover any long term care, unless you exhaust all of your financial means. The average retiree should expect to pay for 2 years in a long-term care facility.
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