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Options aplenty in planning, paying for long-term care

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If you are healthy and thriving, it’s easy to focus solely on building your savings to provide for your basic retirement expenses and forget about the potential need for long-term care as you age.

But since an average 63 percent of today’s 65-year-olds will require some form of long-term care during their lifetime, it’s important to have a plan to pay for these costs as well.

Do you know your long-term care options? What strategy is the best fit for you?

Long-term care costs are so high that they could potentially wipe out a bulk of your retirement funds.

On average nationally, it costs $253 per day or $7,698 per month for a private room in a nursing home. Furthermore, because of their longer life expectancy, women pay significantly more for long-term care.

The average amount of time women require long-term care for is 3.7 years (or around 44 months), adding up to $306,460 in expenses. For men, who need long-term care for an average of 2.2 years (or around 26 months), that equals $181,090.

For assisted living, the average monthly cost is $3,628, but it can range upward of $5,000 per month. And by 2026, the average cost is expected to increase to $4,876 per month.

These costs can vary based on the level of care and amenities needed, as well as the size of the room and the location.

Whether worried about potential health concerns or seeking to protect hard-earned wealth, it’s important to understand the long-term care insurance options and whether or not a policy makes sense for your lifestyle and needs.

Long-term care coverage isn’t cheap, either, but it pales in comparison to long-term care costs.

Here are options to consider:

<TRADITIONAL LONG-TERM CARE INSURANCE

With traditional long-term care insurance, you pay a premium in exchange for receiving benefits if needed. If you need long-term care at some point, the policy provides money to pay for it. If you never need long-term care, then you receive no benefits. It’s a “use-it-or-lose-it” policy.

Just like any insurance policy, you will have coverage choices:

<Customized coverage

You can choose the level of insurance and select the daily benefit amount for care in a nursing home. You can add home-care coverage if that is a priority. To choose the right coverage amounts, know the cost of long-term care in your state.

<Length of coverage

You also must decide on the length of time to receive benefits. Common options are one, two, three or five years or lifetime. Logically, the longer the period, the higher the premiums.

<Benefit stipulations

Your policy also will indicate benefit triggers, or conditions which must exist to receive benefits. A tax-qualified plan only pays benefits once you are unable to perform two of six activities of daily living without substantial assistance for at least 90 days, or have a cognitive impairment such as Alzheimer’s. Non-tax-qualified plans may have less restrictive triggers.

<Inflation and premiums

If desired, benefits can increase with inflation to match future care costs. On other hand, premiums also can increase, as usually they are not frozen.

<LIFE INSURANCE

WITH LONG-TERM CARE RIDER

With a traditional long-term care policy, people sometimes feel that if they buy it and don’t use it, they have wasted their money. Because of this, several hybrid products have emerged.

One very popular solution is a life insurance policy with a long-term care rider. This is enticing because if long-term care is needed, funds are available through your policy’s death benefit.

If you don’t spend the total benefit, your beneficiaries will receive the balance upon your death, thus no wasted money.

If you need life insurance, getting long-term care coverage as a rider may be a good option. This way, someone will be benefiting from the premiums you are paying.

<ANNUITY WITH LONG-TERM CARE RIDER

If you don’t need life insurance, another combination product may be better suited.

If you buy a variable annuity, you may have the alternative of adding a long-term care rider onto the contract. Since 2010, the Internal Revenue Service allows for the long-term care portion to be used tax-free.

After buying the annuity, select the amount of long-term care coverage you want, often two to three times the face value of the annuity, as well as the length of time for coverage. Finally, you must decide if you want inflation protection.

This option makes money available if you need long-term care. Otherwise, you cash out the annuity when it matures (in which case you would lose long-term care coverage) or let it accumulate and ultimately pass on the assets to heirs.

Obtaining long-term care coverage through an annuity can be appealing because it is generally less expensive than stand-alone insurance and you can receive coverage without medical underwriting. Annuities tend to be less common than the other choices, though, because of the existing low-interest rates and the large upfront investment.

<SAVE ON YOUR OWN

Consider starting a savings plan specifically for future health care needs.

One option is to create a separate, high-yield savings account and contribute a specific amount every month, building a contingency fund.

If you end up not needing long-term care, the money is still yours and can be used for living costs or unexpected expenses or passed on to heirs.

Lisa Strohm is founder and CEO of The Athena Network, a financial and life management firm in Upper Saucon Township, providing investment advice and financial planning offered through Good Life Advisors LLC, a registered investment adviser. (The Athena Network and Good Life Advisors are separate entities.) She provides fee-based financial planning and investment management for women, their spouses and extended families. She can be reached at 484-224-3439 or lisa.strohm@the-athena-network.com.

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