How to Avoid the Catastrophic Costs and Effects of Long Term Care

Using your personal savings to pay for long-term care costs can provide you with greater flexibility. However, before using your savings, ask yourself if your retirement plan is built to withstand these potential expenses. And even if you believe your plan is sound, keep in mind that long-term care coverage can also help protect your other assets and allow you to pass your wealth on to your loved ones.

If you do use your qualified retirement accounts, such as your k or IRA, there may be tax ramifications for withdrawals. If you've decided you want long-term care insurance, you need to think about when to buy it, how much coverage you want, and the types of features that make sense for your situation. How does someone actually figure out whether long-term care insurance is right for them?

The older you are, the greater the chance you'll have a medical event that requires long-term care, or that you'll develop a health issue that will keep insurers from approving your policy application.

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At that point in your life, Ewanich says, "you're old enough to think seriously about long-term care and there are advantages to making the decision at this time rather than putting it off until later. You're likely to pay less for the same amount of coverage than if you wait until you're older and you're less likely to have medical issues that disqualify you for coverage.

In addition to the risk of your health deteriorating as you age, the financial cost of waiting to purchase a policy should be considered as it will typically become more expensive to purchase the same amount of long-term care coverage each year you wait. Typically, you become eligible for your long-term care benefits when you can no longer perform 2 "ADLs," or Activities of Daily Living e. Then, most policies have a waiting period "elimination" or "deductible" period , during which you pay for your care separately from your policy until your waiting period is completed and you can start long-term care benefits.

Most long-term care policies cover the same types of costs, from nursing home stays to home health aides. You have to decide how much coverage you want, both in terms of the dollar amount of your benefits and how many years you want those benefits to last. As Ewanich points out, buying long-term care insurance is like purchasing a pool of money that you can use for daily coverage e.

Importantly, don't buy more coverage than you can afford. Instead, consider reducing the amount of coverage to balance your financial situation with your long-term care needs. Also, recognize that there are different ways to pay for your policy. While some are single-payment-premium policies that you pay in one lump sum, other policies, like traditional long-term care coverage, can be paid for through periodic premium payments. If you're going to spend the money on long-term care insurance, make sure your benefits will be sufficient—and available to support you.

Long-term care: options and considerations

Since long-term costs will likely continue their upward climb, you might consider adding inflation protection. Also, choose an insurance company with a strong track record and solid financial health. You want to make sure the company has the longevity to be around for the long-term, so it can pay your benefits when you need them.

Your long-term care insurance should fit your personal situation. An individual may need a different level of coverage than a married couple because a single person has to consider the long-term care needs of only one person. For couples, consider the effect on your spouse's financial situation if you have an extended long-term care situation.

A thoughtful long-term care coverage decision is all about balance—weighing what you can afford, the kind of care you expect, and the risks you might face. It is not just a financial decision but using insurance may help relieve the emotional and physical burden for caregivers such as family members and friends. Made carefully, it's a decision that may help avoid financial catastrophe and provide you with peace of mind for your retirement. Get a weekly subscription of our experts' current thinking on the financial markets, investing trends, and personal finance.

Three Ways to Protect your Assets from Nursing Home Costs

Please enter a valid name. First and Last name are required. Full name should not exceed 75 characters. Enter a valid email address. Email address must be 5 characters at minimum. Email address can not exceed characters. This article will discuss three techniques that elder law attorneys use to help families protect themselves against the financial cost of long term care once the need for that care has arisen. These strategies are just part of the planning arsenal that is available. They can be used in a crisis.

A perspective on long-term care for the elderly

But, of course, it is best to plan early, rather than wait for a crisis to happen. This planning ideas discussed below focus on utilizing the Government Medicaid program to help protect the financial security of an individual who is married to a nursing home resident. But these techniques can be adapted for unmarried individuals and for those persons, married and unmarried, who are receiving care at home.

Not many Pennsylvania couples can afford to pay that kind of cost for long. Potential third-party payers include Medicare, private insurance, and Medicaid. Most seniors have Medicare financed coverage as their primary payer of health care costs.

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But Medicare does not pay for long term stays in a nursing facility. Another possible payment source is insurance.

Concerns about the current system

But few seniors have this kind of coverage. And premiums have been increasing a lot in recent years. But Medicaid has complicated financial qualification rules that can prevent a long-term care recipient from qualifying for the program. An experienced elder law attorney will be able to help families find their way through the qualification maze and qualify for Medicaid sooner rather than later.

Here are three techniques that elder law attorneys utilize in the right circumstances. For example, a couple may elect to pay off existing debts; to prepay real estate taxes, insurance, or other large bills; or to prepay funeral expenses. Medicaid eligibility rules do not count certain assets such as a home, a car, and personal effects. Therefore, in appropriate cases a community spouse might take money from countable savings to buy a more expensive home; repair or improve an existing home; or buy a new car, new household furnishings, or personal effects.

John worked for a phone company for 45 years. John has been retired for about 15 years and will soon be 80 years old. John's wife Emma died 10 years ago from a long battle with breast cancer. Unfortunately, her medical bills fighting the cancer chewed up much of John and Emma's savings. John has two children. His daughter Sara lives about 40 miles from John and his son Tom lives out of state with his family. John has slowed down a lot in the last year or two and his balance isn't what it used to be. John has high blood pressure and has had two stents put in over the last year.

His daughter Sara is very concerned about what will happen if John has a stroke or falls. John still lives at home alone, the home he's owned for 40 years in San Diego. John does not have any long-term care insurance, but he does have a basic estate plan in place. The estate plan however was drafted over 20 years ago and John and Emma never updated their plan.

There have been many changes in the law and in John and Emma's financial situation since the trust was drafted 20 years ago. John's daughter is married with two children and is a nurse at a local hospital. She checks in on John as often as she can with her busy work schedule and family life, but it's a challenge. She's recently become quite worried about John's health because he's had a couple of falls and he had two stents put in last year. He's also become more forgetful in the last six months. John broke his hip in the fall. John needs surgery to repair his broken hip but there is a possibility of further memory loss if he's put under anesthesia to repair his broken hip and it could render him legally incapacitated and unable to sign documents.

Because Sara is a nurse in the emergency room, she has been exposed to some training on qualifying for government benefits for long term care stays. Though she's not an expert, she knows enough to contact a local elder law attorney that she has referred past patients of the hospital to.

Do to the emergency nature of the situation, Sara was able to get an appointment with the attorney the next day. She also recommended that John set up an irrevocable trust and transfer his home to it, all before he goes in for surgery in two days. They could also wind up needing to get him under a conservatorship because his existing documents are so old.