Kiplinger’s Personal Finance: How to afford long-term care

Long-term-care costs can shatter your retirement nest egg, but here are some ways to pay for these potentially big bills.

Traditional long-term-care policies: These are usually the most efficient way to cover costs if you end up needing care.

You choose the daily or monthly benefit and the benefit period, and usually an inflation adjustment of 3 percent per year. The earlier you buy the coverage, the lower your annual premiums will be, but you’ll have to pay premiums for a longer period.

One way to hedge your bets is to get a policy with shared benefits with a spouse or partner.

For example, if you each bought a shared policy with three years of benefits, you’d have a total pool of six years that either spouse could use.

This tends to increase premiums by 15 percent to 30 percent per year but may make you more comfortable choosing a shorter benefit period, said Brian Gordon of MAGA Ltd., a Chicago-based agency specializing in long-term care.

However, it’s becoming more difficult to qualify for long-term care if you have any health issues. And premiums can increase after you buy the policy, which has happened to many people over the past 20 years.

Hybrid life insurance/long-term care: More insurers are offering life insurance that provides extra coverage for long-term care.

You usually pay a lump sum or premiums for 10 years, and you can receive a death benefit worth slightly more than your premiums if you don’t need care.

If you do need care, you can receive about three times the death benefit in long-term care coverage. Long-term care payouts are subtracted from the death benefit.

Life insurance with chronic care rider: These policies let you access a portion of your death benefit early if you meet the standard long-term care triggers.

Some companies charge 5 percent to 15 percent extra for this feature; others don’t charge extra but reduce your death benefit by more than dollar-for-dollar if you withdraw money for care.

You can usually withdraw up to 2 percent of the death benefit each month, said David Eisenberg of Quantum Insurance Services in Los Angeles.

The policies can provide some long-term care coverage for people who are getting life insurance anyway. But the amount of coverage you receive may be limited, and your heirs won’t receive money you use for care.

Deferred-income annuities: These annuities don’t provide coverage specifically for long-term care, but they can provide income for the rest of your life starting in, say, your 80s, when you’re likely to need care.

A 60-year-old man who invests $130,000 in a New York Life deferred-income annuity will receive $37,327 per year starting at age 80, said Jerry Golden of Golden Retirement in New York.

You’ll get payouts even if you don’t need care, but they stop when you die. Your payouts will be lower if you choose an option that would allow your heirs to receive a lump sum based on your original investment, minus any payouts made to you.

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