PrintAs life expectancies increase, the reality of needing some form of long-term care continues to grow as well, as does the cost of such care. From nursing homes to assisted living to home care, there are various forms of long-term care now available, some of which can run upwards of $80,000 annually.
Retirement savings plans will likely cover a typical retirement lifestyle. However, the increasing cost of long-term care makes it considerably harder to save up enough money in such plans, unless you start very early and contribute the maximum for many years. Annuities may be an alternate way of growing the large sums of money necessary for such long-term care. By using annuities, you can have control over how much you will have available when you need the money. Because long-term care is, for many people, a last resort after living independently, it generally lasts a limited amount of time.
One alternative is to buy long-term care insurance, which is growing in popularity along with the aging population statistics. Such policies offer a wide range of premium payment plans, which may be monthly, semiannually, in a lump sum, or in several fixed payments. The trick is to find a policy that you can afford later in life as the premium rises. Keep in mind that the same policy for a 50-year-old man in good health could be four times higher for a 70-year-old man, also in good health.
There are, however, some serious drawbacks to long-term insurance coverage. The policies rarely cover the rising costs of inflation, and usually have more expensive premiums that make them harder to afford in later years — which is when you'd need the coverage — and do not protect one's savings. There has been a much higher incidence of fraud with this type of insurance than with other forms of insurance coverage. There have been numerous claims of insurance agents selling customers policies with many unnecessary extras. Seniors, concerned about their future years, may fall victim to buying a high-premium policy that won't provide nearly enough coverage. Others find that there are loopholes preventing them from actually receiving payment at all when they're finally in need of long-term care.
Another strategy is to replace the 15 to 20 years of paying premiums, and instead put that same money into investments that will grow faster than the rate of inflation over the same time period. You'll maintain greater control over your money, and won't have to worry about an insurance contract's loopholes or fine print preventing you from seeing the money you believed would cover the cost of long-term care.
If you do opt for long-term care insurance, make sure the policy is reviewed by your lawyer and perhaps your accountant. Because the premiums may eventually become too high or there may be too many potential coverage gaps, the policy may not be worthwhile.
