Rising health-care costs can be a source of stress for people trying to save for the future. One concern is having enough money for health care in retirement, and another is the impact that these expenses will have on the assets people want to leave behind to heirs.
Some investors choose long-term care insurance as a strategy for dealing with these concerns. For those planning retirement, adequate insurance can help cover future expenses. For others planning to pass along their home and other assets to heirs, insurance can be part of overall asset protection and estate planning.
Do most people need long-term care insurance?
Whatever the motivation, individuals contemplating long-term care may have more questions than ever in light of new research challenging beliefs about who needs this type of insurance.
According to the Boston College Center for Retirement Research, 58% of women and 44% of men use nursing home care after age 65. But the duration is shorter than many studies claim. The researchers found that among those who use nursing home care, only a small portion of seniors will stay in a nursing facility for more than three months, the typical threshold at which they would need long-term care insurance. Many seniors enter nursing homes for short-term rehabilitation and return home once they are stronger. In fact, half of men and 39% of women on average stay less than 90 days in a nursing facility. The study concluded that in reality, only 20% to 30% of single individuals may need to buy long-term care insurance.
Investors still need to plan
Planning for future health care often includes expenses that may not be covered by Medicare. Hiring private home health-care workers, moving into an assisted living program, or needing care in a skilled nursing facility can mean large bills that surpass Medicare coverage. Nursing home care, which averages $248 a day — more than $90,000 annually — can be one of the more expensive items, according to a MetLife study.
Investors are still left with the challenge of planning in ways that will protect their assets and cover potential future expenses. Long-term care insurance may cover the costs of a nursing home, and also home care or adult day care services. Depending on the coverage, long-term care insurance may help investors keep assets from being directed to pay for nursing home costs.
Another concern for investors is the insurance premium. Taxpayers who are already itemizing deductions may be able to deduct a portion of the insurance premium if their medical expenses exceed 10% of adjusted gross income. The IRS sets limits for the deduction based on age. There is also an exemption for seniors. For taxpayers who are age 65 or older, the threshold remains at 7.5% of AGI through 2016.
Buying long-term care insurance is a personal decision that can require complex research. Meeting with a financial advisor who understands your personal financial situation can be helpful to make the determination.