By FPA member Kevin Moore, CFP®, AIF®
Last Updated: March 12, 2012
Aging is part of the human experience. While we may not always like the aging effects, most of us would opt for aging over the alternative. Incorporating aging into your planning process is important, especially when it relates to increasing health care costs and insurance premiums. These increases reflect the ever increasing cost of providing health care; these costs accelerate as we age and can significantly impact the best laid retirement plans. Paying for health care costs is a significant retirement planning issue.
Long-term care insurance can be a component of your planning strategy for paying for health care costs. Certainly, if you have accumulated significant assets, long-term care insurance may not be necessary; but for the rest of us it may be critical to paying for health care expenses. Long-term care insurance provides coverage for care associated with general living activities (i.e. help with cooking, dressing, bathing, physical activity, mobility, etc.). This care can be delivered at home or in a nursing facility. Before purchasing a long-term care policy, some factors should be considered.
One of the significant factors is lifestyle. What type of lifestyle you live may significantly impact the likelihood that you may need long-term care. Additionally, where you want to live may impact your ability to access health care or how quickly you can access that care. Accessing care does not always entail entering a facility, but the availability of accessing home health care may be difficult in more rural areas.
The type of care and where you would like to receive that care are also important considerations. Most people would like to stay in their home as long as possible; however, if you require more intense care, a facility may be more appropriate. For others, the type of care may not be significant and thus can be delivered at home. It is important that any policy purchased must provide coverage for both in-facility and home care coverage.
The importance of having some type of coverage is underscored by the current state of flux of the health care delivery system. Medicare and Medicaid coverage are limited in not only the amount they will pay for, but also what they will pay for. For example, Medicare will not pay for home health care coverage. Therefore, if you wish to receive care at home, Medicare will not cover those costs.
Beyond knowing that you have source of income to pay long-term care costs, long-term care insurance can provide protection for your financial investments. For example, if you have health care costs that can be covered by long-term care insurance, the need to liquidate investment accounts may be limited — a positive especially if the financial markets are in a downward trend at the time you need the money. Furthermore, long-term care coverage can provide income now which can be important if the only assets of sufficient size to pay for your costs are illiquid assets such as real estate.
In certain states, the purchase of a qualified long-term care policy can allow additional assets to be excluded from Medicaid qualifications. This provision may be helpful to individuals who do not want to spend down their assets to significantly low levels. These policy types can not only provide coverage for health care costs, but also allow the individual to retain some assets and dignity.
Despite the ever changing health care delivery and payment system, long-term care insurance is another tool for individuals to exercise control over their financial futures. This alone may provide peace of mind. Long-term care insurance can provide not only income when needed, but also can protect the assets acquired over a lifetime.
FPA member Kevin Moore, CFP®, AIF®, is a principal at i*financial in San Antonio, TX. Securities and advisory services offered through Commonwealth Financial Network®, member FINRA/SIPC, a registered investment adviser. Strictly intended for individuals in: CA, CO, CT, DC, LA, MD, MN, NC, OK, OR, TX, VA, WA, WI . No offers may be made or accepted from any resident outside these states due to various state and registration requirements regarding investment products and services.