Long-term care insurance is an important way to reduce risk in retirement. Unexpected health problems and related expenses can take over a retiree’s financial life if they don’t have a plan to pay for the cost of care. The cost of such a policy will depend on several factors, including your age and level of coverage, so whether you should accept the $2,000 annual premium depends entirely on your personal profile.
If you buy early, this price may be a bit high. In your 50s, a policy can cost between $1,000 and $2,000 a year, depending on what you need, according to the American Long-Term Care Insurance Association.
If you wait until retirement, this price is quite low. In your 60s and 70s, a long-term care insurance policy can cost between $2,000 and $4,500 a year, depending on your different coverage options.
Planning for all your retirement needs early can have a big impact on your finances. Talk to a financial advisor today to create a personal plan.
What is long term care insurance?
Long-term care insurance is a policy that pays for ongoing support services.
Most often, long-term care will pay for either home help, such as a visiting nurse, or a stay in a medical facility, such as an assisted living or nursing home. Most people need insurance, Medicaid, or another source of funds to pay for it. Depending on the nature of your services, long-term care can cost anywhere from $5,000 to $8,000 per month, plus co-pays.
For most policies, $2,000 is very reasonable
This all goes back to our title question: Is $2,000 a year a reasonable price for long-term care insurance?
The answer is that it depends. Going back to data from the American Long-Term Care Insurance Association, a few average policy prices for representative profiles include:
Age 55, single male, $165,000 coverage, no inflation – $900/year
Age 55, single female, $165,000 coverage, no inflation – $1,500/year
Age 55, single male, $165,000 coverage, 2% inflation – $1,650/year
Age 55, single female, $165,000 coverage, 2% inflation – $2,725
So say you’re a woman in your 50s who would like a policy that adjusts for benchmark inflation. With that profile, $2000 a month is a good deal. On the other hand, $2,000 a year is a bit high for a man in a similar situation.
Then there are the prices if you wait until retirement age;
Age 65, single male, $165,000 coverage, no inflation – $1,700/year
Age 65, single female, $165,000 coverage, no inflation – $2,700/year
Age 65, single male, $165,000 coverage, 2% inflation – $2,600/year
Age 65, single female, $165,000 coverage, 2% inflation – $4,230/year
Here, your $2,000 offer is almost certainly a good deal, unless you’re someone who doesn’t want to index their benefits to inflation, which is probably a bad decision.
Long-term care insurance is a key part of retirement planning. It’s expensive, but the care it involves can be substantial. While it can be difficult to budget for this insurance for retirement, it can be even more difficult to budget for the nursing home itself.
Talk to a financial advisor today about your long-term care insurance needs.
What determines the price of long-term care insurance?
Long-term care pricing is based on the same underlying logic as all health insurance. The more services you need and the sooner you need them, the higher your premiums will be. Some of the most important factors include:
Your age when you buy the policy
Your life expectancy
Coverage inflation adjustment
Your state and its health care costs
The sooner you buy care, the cheaper your premiums will be because you’ll be holding onto coverage longer before using it. The longer your life expectancy, the higher your premiums, because you’re likely to use more care overall. For this reason, long-term care is generally more expensive for women than for men because women have a longer life expectancy.
Long-term care covers your costs up to a limit, and the higher this coverage limit, the more expensive your policy will be. The average policy offers $165,000 in coverage. For an additional premium, you can have that coverage indexed to inflation. This will increase the cover at a set rate each year so that the policy maintains its cost-effectiveness.
Inflation adjustment is generally significant.
Finally, your state and region will determine your total care costs. For example, according to New York Life Insurance, a stay in an assisted living facility in New York costs an average of $8,071. The same stay in rural North Dakota would cost $3,179. This will determine the amount of cover you need, as well as policy requirements and pricing.
A financial advisor can help you determine an appropriate premium.
Long-term care insurance is expensive, and for many, $2,000 is a very good price. Let’s take a look at how these policies work and what you’ll pay.
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