Long-term care insurance planning
When it comes to long-term care insurance (LTCI), many people feel that if they have the available assets, then self-insuring against future long-term care expenses is a more logical argument versus paying long-term care premiums. However, that might not be the case for everyone.
Not unlike other insurance policies you own, LTCI is also a vehicle in which to transfer risk. And when you look at the staggering costs of becoming chronically ill or disabled at any age, the benefits of an LTCI policy can help preserve what you've worked so hard to accumulate for a more comfortable, more confident retirement.
Asset preservationBy transferring a portion of this risk, LTCI may be preferred to the self-insured option when it comes to preserving your assets. For example, nursing homes, assisted-living centers, and home health care are becoming increasingly expensive, and there is no way to predict for how long you may need any one of these services. So just think for a moment about what it would actually cost you out of pocket to self-insure compared to the benefits provided by an LTCI policy.
A costly mistake
There are a number of important objectives in measuring how much LTCI you might need. When determining your limits, what's often overlooked is your current standard of living. More often than not, these “average” costs used for calculating long-term care expenses may not be congruent with your lifestyle preference, or be enough to offer you the ability to select the type of facility or provider you prefer.
While the cost of long-term health care depends on the type and duration of care you need, the provider you use, and where you live, the estimated average annual cost for basic long-term care such as home care from a health aide is $54,912.1 However, for a private room in a nursing home that includes full-time care, specialized physical therapy, and provides full access to a variety of amenities, the average national cost annually is $105,850. 2 When discussing limits for your long-term care needs, be sure to take into account the type of care you truly desire to have and where you want to live should the need arise. Don't make this potentially expensive mistake thinking that your assets are enough to cover costs based on barometers.
An insurance policy has its limits. And if you have a long-term care insurance policy (or have been thinking about purchasing one) it's important to calculate policy limits in accordance with your particular standard of living.