Studies show we’re living longer and taking better care of ourselves – which could increase chances we’ll require long-term care.
Long-term care needs are different from healthcare needs. Where healthcare needs focus on illness, wellness, and healing, long-term care simply provides aid with daily activities. For this reason, health insurance doesn’t cover long-term care needs, which means you could be exposed to the associated expense.
Since the national average for a private room in a nursing facility just surpassed $100,000 a year, it’s critical to include analysis of various long-term care options as part of a comprehensive financial plan.
This week our Money Do is to begin exploring how a long-term care event might lead to impoverishment or depletion of your legacy goal – and options to prevent that from happening.
As you near 50 years of age, consider the risk of a long-term care event by adding an estimated long-term care expense to your financial plan, and grow it at a rate relative to inflation.
For example, let’s say you have a financial plan allowing you and your spouse to spend $60,000 a year, growing at inflation for the rest of your lives without fear of running out of money.
Will this remain true if one of you needs long-term care, requiring an additional $100,000 annually for a span of years, and then passes away sooner than expected? As financial planners, we take a hard look at the potential of the surviving spouse outliving remaining assets, and what could happen to your legacy goal.
If you don’t have enough wealth to self-fund the cost of your long-term care, the next best course is exploring available long-term care insurance products which could help cover some expenses. Long-term care insurance comes in several forms, including:
- Traditional Long-Term Care Insurance: This type of insurance requires an annual premium in exchange for providing a monthly, annual and lifetime maximum benefit. Premiums and benefits provided to cover long-term care vary, depending on the policy purchased.
- Life insurance with a Long-Term Care Rider: This product generally requires a
one-time, large, up-front premium in exchange for a life insurance death benefit. A rider is added which allows the policy owner to use the benefit towards long-term care expenses during the owner’s lifetime.
Either of these products can help with long-term care expenses, thus preserving assets for your spouse or your legacy. If you’re unsure which would help you most, find a financial advisor you can trust to help you work through the decision.
Because long-term care insurance requires underwriting, the older or less healthy you are, the more expensive it can become. Some individuals will not qualify at all.
If you don’t have enough wealth or insurance coverage and long-term care becomes imminent, the State of Wisconsin assists through the Medicaid program, which is designed to aid elderly residents who lack the financial ability to fund their own care.
To qualify for state assistance, Wisconsin has set income and asset limits. To avoid folks “gaming” the assistance system, Wisconsin has a 5-year look-back rule that helps to ensure assets are not improperly given away to qualify for benefits sooner.
Due to the complexity of how assets and income are defined, along with numerous exemptions and exclusions that may be available, it’s highly recommended you work with an estate attorney who understands Wisconsin Medicaid rules, and who can properly execute planning strategies or help with eligibility qualifications.
Long-term care can be expensive and financially devastating, and your advisor should be discussing this risks with you. If not, we suggest finding a fiduciary with long-term care knowledge who can build thoughtful contingencies into your plan.
