Unlock Your Financial Freedom: Long-Term Care Insurance
July 9, 2024

Unlock Your Financial Freedom: Long-Term Care Insurance

Kyleigh Cobett, RCCTM, Financial Planner, CPC

Planning for long-term care needs is crucial for your financial well-being. Almost 70% of individuals aged 65 and older will require long-term care at some point, with 20% needing it for five years or more. As you plan for your retirement years, it’s important to understand how a long life can impact your financial situation.

The costs of long-term care

Long-term care includes services not covered by health insurance, such as activities of daily living (ADLs) like bathing, dressing, eating, and toileting. These services can be provided at home, in a residential facility, or in the community.

The cost of long-term care can deplete your retirement savings, particularly if both you and your spouse require it. In 2023, the average annual cost for care in an assisted living facility was $64,200, while a private room in a full-time skilled nursing care facility can cost over $115,000 per year.

What is long-term care insurance and when do you need it?

Long-term care (LTC) insurance covers a wide range of services. Like home or auto insurance, you pay monthly premiums, and if you need long-term care, you can draw from that policy. Unlike home or auto insurance, long-term care policies pay a per-day benefit.

The earlier you purchase a long-term care insurance policy, the longer you are likely to pay premiums before needing to use it. It’s important to note that rates significantly increase as you get older. Your mid-50s are considered the “sweet spot” for buying long-term care insurance at a lower rate.

Three factors can affect the cost of your policy: the daily benefit amount, the benefit period, and the waiting (or elimination) period. To select a benefit period, you could estimate how long you’ll require long-term care. Alternatively, you could buy a policy with a lifetime benefit period to eliminate the possibility of coverage running out, though they are considerably more expensive.

While LTC premiums can be high, it’s important to understand that the costs of care can extend beyond monetary demands and can put significant strain on you, your caregiver(s), and your extended family.

How to purchase long-term care insurance

One potential drawback of long-term care insurance is that if you stop paying premiums before you need it, you may lose the coverage. However, there are alternatives.

•Universal life insurance policy with a long-term care rider will helpcover the cost with part of the life insurance amount.

•Asset-based long-term care contract uses the structure of either lifeinsurance or annuities and provides additional benefits beyond long-term care coverage.

•Asset-based long-term care life insurance includes a cash valuecomponent that can grow over time.

•Asset-based long-term care annuities allow the initial premium togrow tax-deferred until you need the benefit. Withdrawals made forlong-term care purposes come out tax-free.

•Inflation rider ensures your benefits will keep pace with the rising costsof long-term care over time.

Start the conversation

While these conversations can be uncomfortable, it’s essential to start a dialogue with your loved ones about your health, plans and goals. Long-term care doesn’t just affect the person receiving it, but the entire family – both financially and emotionally.

Feel free to reach out to us to discuss whether long-term care insurance is right for you.

Any opinions are those of CPC Advisors and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Guarantees are based on the claims paying ability of the issuing company. Long Term Care Insurance or Asset Based Long Term Care Insurance Products may not be suitable for all investors. Surrender charges may apply for early withdrawals and, if made prior to age 59 ½, may be subject to a 10% federal tax penalty in addition to any gains being taxed as ordinary income. Please consult with a licensed financial professional when considering your insurance options.
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