MONEY MATTERS: Long term care should be a long term concern

You have done everything right: Your home will be paid off when you retire, your retirement accounts will generate the income you require, you have the funds available for your children's college or they are already finished, and insurance is in place to guard against the loss of income or the destruction of your home or car. Now is the time to sit back and relax. Or, is it?

Unfortunately, there is still something that may sink your perfect retirement. While we are living longer, the last few years are not always without significant health care requirements. The harsh reality is that most retirees are not prepared for a long-term illness or health care needs. The reason? I believe most do not like to consider long-term care protection because of the image that comes to mind. We rarely like to address issues such as our own mortality. But, waiting to handle this one can be a real problem.

Today in our area, the cost of care can range from $3,500 to $5,000 per month, depending upon the provider and additional services provided. While you might believe you can handle this cost without insurance, consider the future cost of care when inflation is considered. Using the average of the above costs and an inflation rate of 3.5%, which I believe is low when considering medical care expenses, the following table shows us what the monthly long-term care (LTC) costs might be in the future.

Years Monthly Costs

Today $4,200

10 Years $5,924

20 Years $8,357

30 Years $11,789

40 Years $16,629

Table 1 LTC Estimated Future Costs

If inflation for these medical costs is higher, then the amounts are much worse. In addition to taking on these costs, your spouse may still be healthy and at home, thus their expenses still must be paid. The ladies I visit with regarding this coverage recognize the need and are almost always ready to move forward, but the men rarely are eager. Perhaps it is because many married men have been taken care of by their wives for so long they cannot see it any other way.

Once the need is acknowledged, the plan design and the provider should be considered. The better designs provide the means to keep pace with inflation, have unlimited benefits, receive benefits in various facilities including your home, treat homecare costs as a monthly bucket rather than daily, and only stand-by assistance is needed before a claim is approved.

As part of the design, you must understand the policy. Unlike life insurance which is pretty straight forward with regards to paying a claim - if you are not breathing, the death claim will be paid. But for long-term care, it is a matter of definitions and contract language which can make it more difficult to compare plans and be certain you know what you are purchasing. Most individuals will rely on their agent, so make sure you are working with someone very knowledgeable with these plans and someone who works with a variety of companies. Another consideration is to determine if the provider is already in the habit of raising rates on their existing policyholders. This may be an indication the company is intentionally pricing their product too low in order to gain market share.

Since this is insurance, most individuals are eager to find out just when is the best time to purchase this coverage. One objective is to keep the premium as low a percentage of your retirement income as possible. One way to achieve this is to spread the cost over more years, thus purchasing coverage in your 40s rather than your 50s, or even in your 60s. Even though you may be paying longer, you will not be paying more. I have tested that theory more than once.

There are only four ways to pay for this care: 1. Have sufficient resources yourself to pay as you go; 2. Get even with your children and have them pay; 3. Spend all of your money to become indigent before you become ill, and have the Government pay; or 4. Be insured and only pay part of the costs by paying the premiums.

Have a financial question you would like a response to? Send your question to Doug Horn, 115 W. Broadway, Maryville TN 37801, be sure to mark your envelope Money Matters. We will answer as many as possible in this weekly column.

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