When planning for retirement, most of us think about where we want to live, how much we want to travel, how we want to spend our days, and how we’re going to pay for it all - but far too many of us fail to consider the costs associated with changes in our health.
The problem isn’t in becoming sick and dying, the financial risk stems from surviving an illness and then requiring long-term care. Women are more likely to experience the latter scenario, so it is imperative that you plan for this possibility, so you don’t deplete your retirement savings or greatly reduce the value of your estate.
In some parts of the country, a private room in an Assisted Living Facility can cost as much as $100,000 per year and Medicare, generally, does not cover this expense!
One smart option is to buy insurance to cover the cost of long-term care. Unfortunately, research shows that people tend to make insurance decisions that are not in their best interest. The decisions not to buy long-term care insurance is a prime example of this.
Most people have fire insurance because their mortgage requires it. Many of us retain the coverage after the mortgage is paid off because we’ve grown accustomed to the peace of mind that comes from knowing that we’re protected from catastrophic financial loss in the very unlikely event of a home fire.
The primary goal of long-term care coverage is to reduce your financial risk. If you purchase more insurance than you need, the increased cost of the premiums could end up defeating your financial purpose.
This same concept applies to other types of insurance. If you have a very low deductible on your car insurance, your premiums will be much higher. A higher deductible makes financial sense because it greatly reduces the reoccurring cost of the insurance.
Even in states where car insurance is not required by law, most people understand the need to pay insurance premiums to avoid the financial hardship that could be caused by an accident or lawsuit. People pay auto insurance companies to assume risk on their behalf, but when it comes to long-term care they think - “What if I don’t need it?”
Some people decide against buying long-term care insurance because they believe they have other options. One common assumption is that a son or daughter will care for them, but that may not be possible – especially, if they have to work to ensure their own financial security. Others plan to sell their home, but this is not a good risk-management strategy. Long-term care insurance is meant to protect assets like your home.
In some states, regulators have approved policies that would allow long-term care insurance providers to charge women as much as 50% more than men!
The justification for the discrepancy is that women are more likely to need this type of care so - expected premium increase for women to surface in other states. One way for women contemplating this kind of insurance to save money is by accelerating their purchase thereby locking in premiums before they rise in their state.
When assessing long-term care policies, both men and women should consider the following points:
Given that the odds of requiring long-term care are so great and the consequences of not protecting your assets are so dire, the decision to purchase this type of coverage should be a no brainer – especially, for women.