One of the most common questions I get when preparing financial plans for people near retirement is about long term care insurance. As I talk with my clients, I hear two concerns almost universally…first, what happens if I never need to use the insurance, and second, the coverage seems very expensive. As with many financial products, long term care insurance can be a great product for the right person in the right situation. I found a very interesting article today on Morningstar.com with some facts about long term care. Click here to see the article. Please note that some of the figures are more than 10 years old, and Illinois has changed the rules around Medicare. At the end of the day, no matter how you decide to deal with the potential cost of long term care, it needs to be part of your retirement plan
Now for some background…
The basic idea behind long term care insurance is that as we age and our bodies and minds deteriorate, we need help doing some of the basic things, like getting out of bed, showering or preparing a meal. There are actually 7 activities, technically called Activities of Daily Living or ADLs, that long term care insurance covers that are not covered by traditional Medicare or part B supplements. Therefore, if we need this type of help, the cost of that help comes out of our own pocket, and is in addition to whatever we spend for doctors, medication and the like.
At JK Financial Planning, Inc., we recommend that all of our clients develop a long term care plan for themselves. That plan may or may not include long term care insurance. People have ultimately three (3) options for long term care. First, they can buy outside insurance. If this is your plan, you will need to make sure to plan for the premiums in retirement as part of your “fixed” expenses. Second, you can rely 100% on your children or other relatives to care for you. In this instance, we suggest having a serious “sit down” talk with your prospective caregiver so they know what they may need to do. The third option is to buy a base level of insurnace, knowing that you will need to spend down your assets if / when you need long term care help.
Below is a link to a guide put out by the NAIC (National Association of Insurance Commissioners):