As the Baby Boomers have begun coming into their golden years, a major question has begun popping up. It’s being asked at doctor’s offices, nursing homes, and financial advisors’ offices: How can I cover the costs of long-term care?
It’s an important question to consider, as long-term care costs are already high, and continue to grow. Just look at these numbers from the Genworth annual Cost of Care Study: According to the study, the median cost of a private room in a nursing home is $91,500 per year, with a semi-private room coming in just slightly lower at $80,300.
Even if you don’t need the 24-hour care provided by a nursing home, you’ll still be paying a hefty amount. The median cost of care for assisted living facilities is $43,200 per year; for home health care, around $45,000 per year; and for adult health day care, around $18,000 per year.
Without proper planning, paying for these costs can become unmanageable or require relying on adult children or other family members to provide financial help. And that, frankly, is usually the last thing that a parent wants to do.
So how does one prepare for and pay for these costs? There are a few potential options, each with their particular pros and cons.
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- Purchasing long-term care insurance. If you’re in your 50s or 60s and in fairly good health, purchasing long-term care insurance could be a helpful solution. (Long-term care insurance, not surprisingly, becomes more expensive as you age.)
As with any insurance policy, you’ll need to pay close attention to the terms, costs, and benefits associated. It doesn’t make much sense to buy an expensive policy that includes lots of coverage exclusions, so make sure you shop around before you purchase.
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- A life settlement. A life settlement allows you to sell your unwanted or unneeded life insurance policy to investors on the Secondary Market, who then assume the premium payments and collect the death benefit when you die.
In return, you receive a lump sum payment for your policy, which is usually much higher than the cash surrender value. The lump sum can be used for anything - the payment is yours. Many people choose to use the money to help fund the costs of nursing home, assisted living, or at-home healthcare.
Some people who are receiving care at home from a family caregiver put that money toward assisting with household finances, which can help alleviate the financial strain on their families.
If you don’t want or need your life insurance anymore - maybe the premiums are too high, or your children are grown and self-sufficient - and the policy qualifies, you may want to ask your financial advisor about the possibility of a life settlement.
- A reverse mortgage. Reverse mortgages are another possible option for paying for the cost of long-term care. These are different from home equity loans, as they do not pose the risk of losing your home if you can’t make the payments. With a reverse mortgage, you still draw on your home’s equity but the payments aren’t due until you are no longer living in the home.
While this can work well for some people, getting a reverse mortgage is a major financial decision and things are not always as they seem. Therefore, it’s best to discuss it thoroughly with your financial advisor before committing to anything.
Paying for long-term care can be challenging, but you do have options that can help alleviate some of the financial stress. If you don’t need long-term care yet, you’ve still got time to plan your approach and, if possible, begin saving.
If you think a life settlement might be the right choice for you, ask your financial advisor to contact Ashar Group today.