Long-term care insurance is an important way to reduce risk in retirement. Unexpected health problems and related expenses can overwhelm a retiree’s financial life if there is no plan in place to pay for the cost of care. The cost of such a policy will depend on several factors – including your age and level of cover – so whether you should accept a $2,000 annual premium depends entirely on your personal profile.
If you buy early, this price may be a little high. At age 50, a policy can cost between $1,000 and $2,000 a year depending on what you need, according to the Long-Term Care Insurance Association of America.
If you’ve waited until retirement, that price is pretty low. In your 60s and 70s, a long-term care insurance policy can cost between $2,000 and $4,500 per year depending on your different coverage options.
Planning for all of your retirement needs early can have a big impact on your finances. Talk to a financial advisor today to build a personal plan.
What is long-term care insurance?
Long-term care insurance is a policy that pays for ongoing maintenance services.
Most often, long-term care will pay for either home help, such as a home care nurse, or a stay in a medical facility, such as an assisted living or nursing home. Most people need insurance, Medicaid, or some other source of funds to pay for it. Depending on the nature of your services, long-term care can cost between $5,000 and $8,000 per month plus additional costs.
For many policies, $2,000 is very reasonable
This all comes back to our main question, is $2,000 a year a reasonable price for long-term care insurance?
The answer is, it depends. Going back to data from the Long-Term Care Insurance Association of America, 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 – $2725
So, say you’re a 50-year-old woman who would like a policy that adjusts to benchmark inflation. With this profile $2000 per month is a good deal. On the other hand, $2,000 a year is a little high for someone in this 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 $2000 offer is almost certainly a good deal, unless you’re someone who doesn’t want to index their income 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 covers can be essential. While it may be difficult to budget for this retirement insurance, it will 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 cost of long-term care insurance?
Long-term care is defined based on the same basic 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 adjustment for inflation
Your country and health care costs
The sooner you buy care, the cheaper your premiums will be because you’ll hold the insurance 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 tends to be more expensive for women than for men because women live longer.
Long-term care covers your expenses up to a certain limit, and the higher that coverage limit, the more expensive your policy will be. The average policy offers coverage of $165,000. For an additional premium, you can have this coverage indexed to inflation. This will increase the coverage by a certain percentage each year so that the policy maintains its spending power.
Inflation adjustment is generally essential.
Finally, your state and region will determine the cost of your overall care. For example, according to New York Life Insurance, it costs an average of $8,071 to stay in an assisted living facility in New York. That same stay in rural North Dakota would cost $3,179. This will determine the amount of coverage 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 people, $2,000 is a very good price. Let’s find out how these policies work and what you have to pay.
Health Insurance Tips
Photo: ©iStock.com/Inside Creative House
The post I was quoted $2000 a year for long term care insurance. Is that much? appeared first on SmartReads by SmartAsset.