How to plan for the cost of long-term care in retirement

People who turn age 65 today have an almost 70% chance of needing some form of long-term care.1 Because Medicaid and most health insurers don’t cover long-term care, these costs can significantly impact your savings in just a few years—that is, unless you have long-term care insurance or another type of insurance to help cover these expenses.

There are several ways to help cover long-term health care costs in retirement, including:

Long-term care insurance

A long-term health care policy can provide coverage to elderly or disabled persons who need assisted living services. Newer policies often cover dementia care.

You can apply for long-term care insurance at any age, but prices are often higher for older applicants. Rates can also vary depending on whether you have any pre-existing health conditions when you apply, your desired coverage limits and whether you get optional benefits like inflation protection.

As with any policy, ask for information about the insurer’s premium rate history, which is subject to change.

Life insurance or annuities with long-term care benefits

These types of policies pay for long-term care that may not be covered by regular health insurance. The risk of buying long-term care insurance, especially at a younger age, is that you may end up paying for something you never use. Alternatively, you could get a life insurance policy or an annuity that offers long-term care benefits. But because this type of coverage is relatively new, there may be little claims payment history available. Also, some life insurance policies set a cap on how much they’ll cover in total annual health care expenses.

Term life insurance

Term life insurance covers an individual for a designated period of time (the term), which typically ranges from 10 to 30 years. You choose the time frame and the coverage amount for the policy and you typically pay a fixed monthly or annual premium. Generally, the longer the term, the higher the premiums. If you die during the term, your beneficiaries will receive a payout known as a death benefit. Term life insurance is often popular with younger individuals, since it can be cheaper than other types of life insurance.