As investors age, long-term care coverage needs to be a part of a bigger conversation that includes financial planning, cash flow projections and estate planning. So often investors get hyper-focused on the insurance product and fail to see how it fits in their overall plan. While there are rules of thumb, such as, “you should buy long-term care insurance if your net worth is between $150,000 and $1,000,000,” that is a very wide range and it doesn’t take into consideration your financial situation.
Long-term care insurance policies generally cover nursing homes, assisted living facilities, and adult day care centers, but they can also cover in-home care and moderate renovations to the home, should you need a wheelchair or other daily living aids. Nearly 80% of long-term care claims begin with home care. Furthermore, according to industry statistics, an average long term care claim can last up to five years and often involves one or more types of care.
Before we begin looking at insurance products, we need to look at an investor’s situation, including spending habits, cash flow and income, as well as the statistics on long-term care events. When creating your financial plan, you and your adviser determined your average spending per year as well as your maximum spending per year that would still allow your assets to last through your life expectancy.
According to insurers’ studies, at least 70% of people older than 65 will require some type of long-term care service at some point in their life, so the chances of needing care are high. Next, we look at where you’ll be spending your golden years and the cost of care in that area. Genworth Financial publishes an annual Cost of Care Survey, reporting the median annual costs for a range of long-term care services across at least 440 regions of the United States. The median cost for a semi-private room in a nursing home in Georgia will be close to $93,200 a year in 2026 according to Genworth’s predictions. If your cash flow projection shows you are spending $70,000 after tax, but your maximum spending is only $75,000, you could not afford the nursing home out of pocket. If your cash flow projections shows your max spending to be $180,000 annually, you may choose to self-insure.
If your max spending is $90,000 after tax, you may still want to consider a long-term care policy. While you may be able to save enough now to cover a few years of care down the road, you have to also consider other factors, such as, the market performance and interest rate assumptions that were used in your cash flow projection, your age, health and average length of a long-term care event. Looking at your whole financial picture can help you determine the financial risk to your current assets.
One aspect investors may overlook is their estate plan. The cost of long-term care can be significant and drain your resources for the legacy you want to leave. If you have three children and an estate worth $5 million, you should consider if your children will choose to put you in the nursing home that costs $10,000 a month or the facility that costs $4,500 a month. Unfortunately, the decision on your care often falls to those who stand to inherit your wealth; therefore, it is important to put a clear strategy for your care in place before the issues arise.
There are a variety of long-term care policies that can fit your financial situation. Your financial adviser can help you determine your need for coverage, while an independent insurance agent can help you find a policy that best fits your needs. If you have questions regarding how a long-term care policy would fit into your overall financial plan, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166.
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
