Long-term care insurance, or LTC, helps pay for the cost of home health care or a nursing home. It also covers extended illness or disability. While LTC coverage can be great for retirees, premiums have begun to rise in recent years, making it a difficult expense for those on a limited income.
So, how do you determine the best way to prepare for long-term care costs in retirement? Here are two factors you should consider.
Would You Prefer a Long-Term Care Facility or In-Home Care?
Before you determine what kind of insurance you want, you need to determine how much long-term care will likely cost. A good first step is identifying where you want to live. The average price to live in a nursing home in the U.S. is $93,075 a year ($255 a day) in a semi-private room and $105,850 ($290 a day) in a private room. By 2030, those costs are projected to be $125,085 and $142,254, respectively. I recommend touring the long-term care facilities in your area to see how much they cost and determine whether you can envision living there.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
What if you want to live in your own home? You can maintain that comfort and familiarity by hiring someone to come to your home. The average price of in-home care is $53,768 per year. The average price of home-health care is slightly higher at $54,912 per year.
Should You Choose Traditional Long-Term Care Insurance or a Hybrid Plan?
Once you select where you want to live, the next step is to decide whether you can self-insure the cost, essentially determining whether you can earmark some of your current assets to pay for these long-term care expenses if needed. I recommend thinking about this in a what-if context: “If I go into a long-term care facility for ‘x’ years at ‘y’ cost, can I pay for this cost without it affecting my other retirement goals?” If the answer is yes, self-insurance is most likely going to be the most cost-effective and flexible solution to cover a possible LTC expense.
If the answer is no, but you have substantial liquid assets held outside of qualified retirement accounts, a hybrid LTC insurance policy might be an alternative solution. These insurance policies are designed to provide LTC benefits but use whole life insurance as the foundation. After paying a single up-front premium, if you need LTC the policy pays a specified monthly benefit for a predetermined number of years. If you end up not needing LTC or you decide to stop insuring the risk at any point, you would get your original premium back. Hybrid long-term care policies tend to have a more transparent cost structure and more flexibility than a traditional long-term care policy.
Also consider the likelihood of your rates rising during the life of your policy. A report in 2019 claims General Electric does not have enough funds to cover claims for its long-term insurance plans. As a result, the company plans to raise premiums by $1.7 billion throughout the next 10 years. Many companies are doing the same thing. In this case, if you are unable to pay your premium, your policy will lapse and you may get nothing back.
I recommend talking to a Certified Financial Planner to determine the best option for you.
Defined Financial Planning LLC (“DFP”) is a registered investment adviser offering advisory services in the state(s) of California, Nevada and in other jurisdictions where exempted. Life insurance policies are contracts between your client and an insurance company. Life insurance product guarantees rely on the financial strength and claims-paying ability of the issuing insurer. Living benefits and LTC riders are not available on all index universal life products and may not be available in all states. Addition of an accelerated death benefit or LTC rider may require an additional fee. Accelerated death benefits and LTC riders are subject to eligibility requirements. A PR firm was paid to assist with media placement.
California Insurance License #0L77279 and #4042728.
Certified Financial Planner Board of Standards Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
-
Original Medicare vs Medicare Advantage Quiz: Which is Right for You?Quiz Take this quick quiz to discover your "Medicare Personality Type" and learn whether you are a Traditionalist, or a Bundler.
-
Ask the Editor: Capital Gains and Tax PlanningAsk the Editor In this week's Ask the Editor Q&A, Joy Taylor answers questions on capital gains tax rates and end-of-year tax planning
-
Time Is Running Out to Make the Best Tax Moves for 2025Don't wait until January — investors, including those with a high net worth, can snag big tax savings for 2025 (and 2026) with these strategies.
-
Time Is Running Out to Make the Best Moves to Save on Your 2025 Taxes
Don't wait until January — investors, including those with a high net worth, can snag big tax savings for 2025 (and 2026) with these strategies.
-
4 Smart Ways Retirees Can Give More to Charity, From a Financial AdviserFor retirees, tax efficiency and charitable giving should go hand in hand. After all, why not maximize your gifts and minimize the amount that goes to the IRS?
-
I'm an Insurance Pro: If You Do One Boring Task Before the End of the Year, Make It This One (It Could Save You Thousands)Who wants to check insurance policies when there's fun to be had? Still, making sure everything is up to date (coverage and deductibles) can save you a ton.
-
3 Year-End Tax Strategies for Retirees With $2 Million to $10 MillionTo avoid the OBBB messing up your whole tax strategy, get your Roth conversions and charitable bunching done by year's end.
-
'Politics' Is a Dirty Word for Some Financial Advisers: 3 Reasons This Financial Planner Vehemently DisagreesYour financial plan should be aligned with your values and your politics. If your adviser refuses to talk about them, it's time to go elsewhere.
-
For a Move Abroad, Choosing a Fiduciary Financial Planner Who Sees Both Sides of the Border Is CriticalWorking with a cross-border financial planner is essential to integrate tax, estate and visa considerations and avoid costly, unexpected liabilities.
-
I'm a Financial Adviser: This Tax Trap Costs High Earners Thousands Each YearMutual funds in taxable accounts can quietly erode your returns. More efficient tools, such as ETFs and direct indexing, can help improve after-tax returns.
-
A Financial Adviser's Guide to Divorce Finalization: Tying Up the Loose EndsAfter signing the divorce agreement, you'll need to tackle the administrative work that will allow you to start over.
