Planning for the potential for expensive healthcare at the end of our lives is one of the least exciting parts of retirement.
However, it’s a real and significant part of financial planning.
Even a few years of long-term care can be a major financial burden.
Genworth Financial, one of the larger long-term care insurers, reported in its 2021 Cost of Care Survey that the median cost of a semi-private room at a nursing home was $94,896 per year.
How is Clark Howard preparing for potential long-term care costs for himself? And what are the options? That’s what a listener of the Clark Howard Podcast recently asked.
How Is Clark Howard Preparing for Long-Term Care Costs?
On the Nov. 16 podcast episode, Bobbi in New York asked: “How have you prepared for potentially significant long-term care costs? Do you have traditional or hybrid insurance coverage, or are you self-funding?
Clark breaks down the solutions for long-term care into three groups: those who qualify for Medicaid (based on low income), those with a net worth of at least $3 million excluding your home and those in between.
For the group with significant wealth, Clark doesn’t recommend paying to protect against this potential expense.
“I can self-fund and stay in assisted living,” Clark says. “When I looked at buying coverage, it just didn’t make any sense for me. I’ve had the good fortune over the years to have enough assets that it can just be a life expense like a health expense.”
If you don’t own a home and you qualify for Medicaid, you also don’t need to worry about insuring against the need to pay for long-term care. The home ownership portion is important because the government can take your home before stepping in to carry your healthcare costs, Clark says.
What To Do if You’re Middle Class
Most people fall somewhere in between wealthy or impoverished.
Everyone in this zone should consider a long-term care insurance solution to protect their finances and quality of life, Clark says.
Traditionally, purchasing long-term care insurance has been the solution to guard against longevity and a daily need for help with basic functions or medical care.
However, the industry has found it extremely difficult to project for future costs, life expectancy and longevity.
“They’re difficult to buy,” Clark says about long-term care insurance policies. “The industry imploded.”
However, there is another solution. You can buy a “hybrid” whole life insurance policy. Look for one with a rider that allows you to convert the benefit from a death benefit into paying for long-term care.
“The hybrid insurance tends to be the least bad alternative,” Clark says. “It’s a mediocre answer to a very difficult problem. But today, it’s the least bad answer. Try to buy from a company rated A++ by AM Best.”
Hybrid policies are as much as three times as expensive as long-term care insurance (LTCI). But the money for an LTCI policy vanishes when you die, even if you never make a claim. LTCI policies also leave you susceptible to price increases. Hybrid policies take care of those potential downsides.
With a hybrid policy, “You can use [your benefit] for long-term care if you need it. If you don’t need long-term care, your survivors get the value of the insurance,” Clark says. “That seems to be where the industry is going because the insurers have just been so flat incapable of properly predicting cost and risk on traditional long-term care insurance.”
The odds of you needing some sort of long-term care are greater than a coin flip.
Considering these expenses can already run into the six figures annually, it’s not something you should ignore in your financial and retirement planning.
If you accumulate major assets, you can self-insure. Otherwise, most people need to choose between some imperfect options. Clark recommends a hybrid whole life insurance policy with a long-term care rider.