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Dreams of traveling more, spending more time with family or starting a
hobby often fill the minds of people approaching retirement. It's fun to
visualize walking the beach of an exotic island. We think about using
our
IRAs, mutual funds and pensions to pay for those activities. In
contrast,
most people don't like to visualize needing long-term care. In fact,
most
people avoid thinking about it.
With longer life expectancies, the cost of long-term care is an
increasing
financial risk that adults need to consider. The risk of long-term care
can be handled in several ways.
You can avoid it, hoping for the best, and try to stay healthy. Of
course,
there are no guarantees.
You can retain the risk. In other words, self-insure your long-term care
by paying all the costs from your own net worth.
The third option is to transfer the risk by buying a long-term care
policy. You then pay an insurance company to handle the risk.
The fourth option is to use a combination of these options. Try to stay
healthy, pay some of the costs yourself and perhaps purchase an
insurance
policy, too.
As you make this decision, consider the likelihood of needing long-term
care services. A University of Illinois Extension study found that,
while
37 percent of people who died at age 65 spent some time in a nursing
home,
71 percent of those who died at 95 years of age or older had spent time
in
a nursing home. The more physically disabled you are, the more likely
you
are to need long-term care. An elderly woman is more likely to use a
nursing home than an elderly man.
Individuals without children, a spouse or other family members to
provide
informal care at home are more likely to use a nursing home. One study
found that approximately one-quarter of those who were married at the
time
of death had spent time in a nursing home. In contrast, over two-fifths
of
the people widowed, divorced or never married at death had used a
nursing
home. Family members provide about two-thirds of the long-term care
needed
by people age 65 or older. Researchers found that 73 percent of the
elderly long-term care population rely entirely on out-of-pocket
expenditures and unpaid caregivers as opposed to public resources to pay
for their care.
While predicting the future is impossible, start considering long-term
health care costs and your alternatives for managing these costs. All
the
alternatives will impact your financial plans.
If you decide to purchase a long-term care insurance policy, be sure you
understand what is covered and how you qualify for benefits. Purchase a
policy with a compound inflation rider to increase the amount of
benefits
over time. Choose an appropriate elimination period based on the number
of
days you can afford to pay out-of-pocket. Paying for more of your care
yourself will lower the insurance premium.
Check the financial stability and experience of insurance companies,
especially their track record in providing long-term care coverage.
Premiums for similar benefits should be competitive with other policies.
Ask about discounts. Be sure you can continue to pay the premiums. Look
for policies that count days in the deductible period cumulatively over
several stays, rather than consecutively during one stay. Steer clear of
policies that require prior hospitalization. Compare at least three
company policies and ask questions to be certain you understand the
coverage provided.
Colorado State University Extension fact sheet 9.152,
"Long-Term Care Insurance," is available online. This fact sheet is useful
when considering long-term care insurance. Make planning for long-term
care a part of your long-term financial plan.
For more information, contact your local
Colorado State University Extension office.
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