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Long-Term Care Insurance Can Help Protect Your Family's Finances


 

From Citi Personal Wealth Management

Checking into a nursing home may not be the most appealing retirement scenario. Yet preparing for that possibility could protect your family's finances and preserve your estate. That's where long-term care insurance comes in. It was created to cover the costs of long-term care services, like nursing homes and assisted-living facilities. It can also cover services in your home, such as help with specific activities of daily living, which can include bathing, getting dressed and eating. But these services aren't cheap—and the costs are growing fast. According to a survey by insurer Genworth, the median annual cost for a private nursing-home room in the United States was more than $92,000 in 2016.*

Asking Questions

Faced with these costs, more families are considering long-term care insurance. To figure out if long-term insurance makes sense for you, ask yourself the following questions:

• Could you afford to "self-insure," meaning you would pay long-term care costs out of your own pocket? The average stay in a nursing home is almost three years—which means the cost might run on average $276,000 or more.* That expense might be manageable if you have a seven-figure portfolio, but it could be a huge burden for those with less savings.

• How important is it for you to leave an estate to your children, grandchildren or favorite charities?

• Have family members, whether it's a parent or other relatives, needed long-term care?

• Can you afford the premiums? The annual cost of long-term care insurance varies, based in part on your age when you first buy a policy, but will likely cost a few thousand dollars per year. If long-term care insurance seems too pricey, consider some ways to trim the premiums. For example, you might buy a policy that only covers part of the annual cost, figuring you could potentially pay the rest out of savings or with any pension or Social Security income.

You can also choose a longer "elimination period," which is the waiting period before benefits kick in. You can choose an elimination period of 30, 60 or 90 days or even longer, depending on how long you think you can afford to pay health-care costs yourself. A longer elimination period means lower premiums.

If you are still working, your employer may provide some short-term coverage, perhaps enough to carry you through a 90-day elimination period. Similarly, after you turn 65, you may be able to get some short-term coverage from Medicare. But while Medicare Part A (for hospital insurance) and Part D (for prescriptions) may be adequate for short-term illnesses, they may not be enough for people with chronic disabilities or illnesses. Meanwhile, Medicaid can cover long-term care costs but, to be eligible, you will likely be required to spend down much of your current savings.

Covering Yourself

When reviewing a long-term care policy, you might look for certain insurance features, even though they may add to the policy's cost. For example, you may want a "waiver of premium" clause, either as a basic feature or a rider, to make sure you aren't paying premiums at the same time you are receiving benefits. You may also want an inflation-protection rider, which can ensure the benefits you receive increase with inflation.

Finally, you should probably consider a policy that covers all types of care: in-home care, nursing-home care and assisted-living facilities. While a policy that just pays for in-home care will be cheaper, declining health may require more care than you expected, possibly including a nursing home.

INVESTMENT AND INSURANCE PRODUCTS: NOT INSURED BY THE FDIC • NOT INSURED BY THE FEDERAL GOVERNMENT OR ANY OTHER FEDERAL GOVERNMENT AGENCY, BY THE BANK, OR BY ANY AFFILIATE OF THE BANK • NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, THE BANK OR AN AFFILIATE OF THE BANK • SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL INVESTED

*Nursing home cost is the national median rate for a single year in a private room and comes from Genworth's 2016 study.

The article is informational only. Please consult a professional with relevant experience.

The information provided here is for informational purposes only. It is not an offer to buy or sell any of the securities, insurance products, investments, or other products named.

This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed.

Citigroup Inc. and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

Since life insurance and long-term care insurance are medically underwritten, you should not cancel your current policy until your new policy is in force. A change to your current policy may incur charges, fees and costs. A new policy may require a medical exam. Your actual premiums may vary from any initial quotation you receive. Surrender charges may be imposed, and the period of time for which the surrender charges apply may increase with a new policy. You should consult with your own tax advisors regarding your potential tax liability on surrenders.

There is no guarantee that these strategies will succeed. This information is intended to illustrate available products and services. The strategies do not necessarily represent the experience of other clients, nor do they indicate future performance. Individual clients should review with their Financial Advisors the terms and conditions and risks involved with specific products or services.

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