Funding Long-Term Care Expenses: What Are Your Options?
Planning for the future involves more than simply saving money — it requires careful financial and estate planning, especially when considering the high cost of long-term care. Few things can derail an estate plan as quickly as unexpected long-term care (LTC) expenses. Many individuals will require some form of care later in life, whether it’s a nursing home, assisted living facility, or in-home health support. According to a 2021 survey by Genworth, the national median cost of a private room in a nursing home is around $9,000 per month, while assisted living facilities average about $4,500 monthly. Home health aides can also cost more than $5,000 per month. With costs rising steadily, working with professionals who offer the best Accounting Services Brookfield can help individuals and families develop smart financial strategies, manage assets, and prepare for potential long-term care expenses without jeopardizing their estate plans.
Contrary to popular belief, LTC expenses generally aren’t covered by traditional health insurance policies, Social Security or Medicare. So, to help ensure that LTC expenses don’t deplete savings or other assets meant to go to your heirs, have a plan for funding them. Here are some of your options.
Self-Funding
If your nest egg is large enough, it may be possible to pay for LTC expenses out-of-pocket as (or if) they’re incurred. An advantage of this approach is that you’ll avoid the high cost of LTC insurance premiums. In addition, if you’re fortunate enough to avoid the need for LTC, you’ll enjoy a savings windfall that you can use for yourself or your family. The risk, of course, is that your LTC expenses will be significantly larger than anticipated, eroding the funds available to your heirs.
Any type of asset or investment can be used to self-fund LTC expenses, including savings accounts, pension or other retirement funds, stocks, bonds, mutual funds, or annuities. Another option is to tap the equity in your home by selling it, taking out a home equity loan or line of credit, or obtaining a reverse mortgage.
Planning for future healthcare needs is an essential part of a strong financial strategy. Unexpected long-term care (LTC) expenses can quickly disrupt even the most carefully structured estate plan. Many people will require some form of long-term care at some point in their lives, whether it’s assistance at home, an assisted living facility, or a nursing home. With the rising costs of care, individuals and families are increasingly turning to professionals who provide the best Accounting Services Brookfield to help them prepare financially, manage assets efficiently, and ensure their estate plans remain intact.
LTC Insurance
LTC insurance policies — which are expensive — cover LTC services that traditional health insurance policies typically don’t cover. Determining when to purchase such a policy can be a challenge. The younger you are, the lower the premiums, but you’ll be paying for insurance coverage during a time that you’re not likely to need it.
Although the right time for you depends on your health, family medical history and other factors, many people purchase these policies in their early to mid-60s. Keep in mind that once you reach your mid-70s, LTC coverage may no longer be available to you.
In evaluating LTC insurance, be sure to find out whether your employer offers a less costly group LTC policy. Also, consider whether tax benefits are available to offset some of the cost. (See “Tax benefits for long-term care” at X.)
Hybrid Insurance
Hybrid policies combine LTC coverage with traditional life insurance. Often, these take the form of a permanent life insurance policy with an LTC rider that provides for tax-free accelerated death benefits in the event of certain diagnoses or medical conditions.
These policies can have advantages over stand-alone LTC policies, such as less stringent underwriting requirements and guaranteed premiums that won’t increase over time. The downside, of course, is that to the extent you use the LTC benefits, the death benefit available to your heirs will be reduced.
Life Insurance Exchanges or Settlements
If you have a permanent life insurance policy, it may be possible to do a tax-free exchange for a traditional or hybrid LTC policy. Alternatively, it may be possible to do a “life settlement,” in which you sell a permanent or term life insurance policy for its current value and use the proceeds to fund LTC expenses.
Weigh Your Options
There are several potential strategies for funding LTC expenses. Work with your professional advisor to review your financial and health circumstances, weigh your options, and develop a plan that meets your needs.
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