In many ways, financial planning is a process designed to help investors deal with the inevitable messiness of life: unforeseen illness, sudden career shifts, unexpected windfalls, and all the difficult decisions that come with these changes. As we age, we all become more likely to develop health conditions that affect our independence, mobility, and quality of life. While physicians know this reality far better than most investors, it does not make the prospect of planning for these eventualities any easier. Few areas of financial planning are more important, or more complex, than the issue of long term care.
What is long term care?
Long term care refers to personal or custodial care for individuals who need assistance with basic daily activities, such as dressing, bathing, eating, using the restroom or moving around a home. Long term care includes support provided to an individual either in their home or in a facility such as a nursing home, and the cost of long term care is not covered by health insurance. Most people end up needing at least two years or more of long-term care at some point in their lives, which can come at a significant expense. In some cases, a spouse or child may take on long-term care responsibilities, however this solution is burdensome or unfeasible for most working physicians. According to a 2019 Genworth survey, the annual cost of long-term care can range anywhere from $50,000 for a home health aide to well over $100,000 for a private room in a nursing facility. For individuals who develop dementia, MS, or other degenerative conditions, the lifetime cost of long-term care can be financially debilitating. To understand how consequential long term care planning can be for multiple generations of a family, here is a case study from one of our recent clients:An oncologist in her late 30s decided to employ our financial planning services. As she meets with her advisor to discuss her goals, her number one priority is saving up for her parents’ future. Her parents, now in their sixties, are going through a divorce, and she knows that neither of them have the resources or assets to look after their own care needs later in life. Now, in addition to planning for her own future and retirement, the doctor is worried about providing financial stability for both of her parents in the final decades of their lives. What is the doctor’s best choice in this situation? Should she invest in long-term care insurance for her parents now, or is it already too late? Can other investing strategies take the place of long term care insurance? How can she avoid putting her own children in a similar dilemma down the road? While all these questions are valid and important, there are rarely clear-cut answers when it comes to long-term care. The good news is, there are several long-term care planning approaches that can help ensure quality care for you or loved ones:
Option 1: Long term care insurance
Long term care insurance helps physicians cover the cost of long term care services. Depending on what type of policy you purchase, your insurance will reimburse you up to a determined daily amount for long-term care expenses. According to the American Association for Long-Term Care Insurance, the average annual cost of a new long-term care policy for a married couple, both 55 years of age, is between $3000 and $6,300. Premiums costs can vary widely depending on the carrier, and older individuals will have to pay more to purchase insurance. Individuals already suffering from a chronic condition or in need of long-term care are unlikely to qualify for an LTC policy. LTC insurance will help cover the costs of daily long-term care services for a defined benefit period, usually around three years. Policies that offer longer or indefinite benefit periods will cost more. For this reason, the decision to purchase long-term care insurance can feel like a serious gamble. You may purchase a policy, and end up never needing your coverage. On the other hand, LTC insurance may be a lifesaver if you or a loved one ends up needing several years of long-term care. Finally, the policyholder could suffer a condition that requires decades of long-term care, in which case an average policy would only cover a small fraction of the care costs. If you are interested in LTC insurance, it is important to shop around for the best quotes and coverage, and talk with a financial planner to determine how much financial protection a prospective policy might offer.
Option 2: Life Insurance with a long-term care rider:
One appealing option for investors who do not want to purchase a separate long-term care policy, is an LTC rider for life insurance. Life insurance policies with long-term care benefits are increasingly popular. These riders allow the policyholder to earmark funds specifically for long-term care (funded with a lump sum payment or installments), and then any unused LTC money is paid out in the policy’s death benefit. If you’re interested in bundling your long-term care planning with your life insurance, ask your financial consultant about life insurance policies with an LTC rider. If you already have life insurance, consult with your carrier about the possibility of adding a rider to your existing policy.
Option 3: Alternative investing options
Diligent financial planning can also help investors save up funds for long term care costs. Whether you’re looking to prepare for your own long-term care, your parents’ needs, or both, a proactive investing strategy can provide the necessary funds for long term care down the road. A physician-specific financial planner can help you build a portfolio with designated investments for long term care expenses, so you will be able to cover any LTC costs that may arise, without jeopardizing other retirement investments.
Despite the complexity, long-term care planning is an indispensable component of a robust retirement plan. Without proper preparation, unexpected long-term care costs can jeopardize your financial stability during retirement or put tremendous pressure on your family. Proactive long-term care planning is a tremendous gift that physicians can provide for their families. Whether you opt for long-term care insurance, a life insurance rider, or an earmarked investment approach, long-term care planning ensures peace of mind and quality care in the event of a serious health condition. To develop a long-term care plan for yourself or a loved one, talk with one of our financial planners today.