Do you know someone in your life who needs long term care? They may be family members, friends or acquaintances. There are many circumstances where a health condition may result in a person not being able to care for themselves for an extended period of time. They may need help with activities such as bathing or dressing, or they may have a condition such as Alzheimer’s and need monitoring.
Those in need of care may be fortunate to have a loved one providing unpaid care, but with caregiver fatigue increasing, professional help is often needed. And with the cost of long-term care not covered by Medicare or health insurance, it’s up to the family to come up with ways to pay for care that can be costly!
according to genworth, the average cost of a home health aide in 2021 was approximately $62,000 per year! This is an increase of 12.5% from 2020. And According to a study by PwCThe average person who needs long-term care will spend $172,000—imagine what the cost will be in the future with inflation.
Fortunately, there’s a solution. When someone needs help with things like bathing or dressing, long-term care insurance (LTCI) can make a difference in a family’s life. However, many people wildly exaggerate the cost of LTCI. In reality, the average premium is around $2,500 a year. Sure, it’s not a trivial amount, but compared to the cost of care… there is serious value in coverage.
To make the most of your buck, here are five strategies that can help make LTCI more affordable:
1. Buy at a young age.
In an example, a 50-year-old couple who purchases a long-term care insurance policy with $200,000 in benefits for each spouse that grows at 3% annually would pay a combined annual level premium of $3,573. If they wait until age 60, their annual premium will be $4,606. Not to mention that by age 85, 50-year-old buyers will have a much higher benefit level because their policy will grow at 3% for 10 additional years!
2. Buy a smaller policy and let automatic inflation coverage grow your benefits over time.
Another strategy is to buy a more modest policy at a younger age and then allow automatic inflation coverage to increase its benefits. As an example, a healthy, 50-year-old single male can purchase LTCI with 5% compound inflation coverage with benefits of $80 per day/3 years for approximately $150 per month. At age 86 (for example, when she may need long-term care), the benefit would have increased to $463 per day and the total benefit would exceed the maximum of $500,000. This is the power of compound inflation.
3. Budget a premium that is a percentage of your income.
When saving for retirement, the most popular vehicles are tax-deductible plans like the 401(k). Most employees choose a percentage of their pay, like 6%, to contribute to a 401(k) plan. In the same way, someone may decide that a certain percentage of their income, say 2%, will be spent on long-term care insurance. For example, someone earning $100K a year can see how much coverage a $2,000 annual premium will get them. This can help you plan for the long term.
4. Use the money in your Health Savings Account to pay the premium.
Do you know that you can withdraw money from your Health Savings Account to pay LTCI premium? Since HSA contributions by employers and employees are pre-tax, by using those same dollars for LTCI premiums, you are paying for coverage with pre-tax dollars. And long-term care insurance benefits are tax-free for actual expenses, too!
5. 1035 Replace existing permanent life insurance policies with a combination life/LTCI plan.
As people age, their need for life insurance may decrease, while their need for long-term care insurance increases. Many people do not realize that they can take existing permanent life insurance plans with cash value and use that cash value to buy combination life insurance/LTCI plans on a tax-favored basis. This may reduce or eliminate the need for additional premium.
Long-term care insurance provides tremendous value. With proper planning, people of all income levels can find a policy that best suits their situation and budget. But delaying can be problematic – talk to a financial professional about LTCI today.