Have you thought about how you would pay for care if you needed assistance with daily living activities or were cognitively impaired? Would you use existing savings? Or rely on family?

According to the Department of Health and Human Services, seven out of every ten people age 65 or older will need some type of long term care assistance in their lifetime. The national average cost for a private room in a nursing home is $108,405 annually. This could have a devastating impact on your retirement and legacy goals.

Long-term care insurance can provide benefits for long-term or chronic care expenses. It may be a way to protect your assets and remove some of the burden from your family. Long-term care policies create an income tax-free pool to pay for qualified expenses related to in-home care, community care, assisted living, nursing facilities, and home modifications. Understanding the different types of long-term care products available can help you determine what may be best for your situation. Here are four brief scenarios of when different types of long-term care coverage may fit into a retirement plan.

In scenario one, Mike is 60 and Carol is 61. Carol’s family has a history of Alzheimer’s, and she is concerned she will likely need care at some time. Mike is not sure if he will need care but likes the idea of having coverage. They choose a stand-alone long-term care policy with a shared care rider. This allows them to share their unused benefits with each other. Assuming they buy identical policies of 4 years of benefits each—they can use 8 years of benefits between them. A stand-alone policy offers the most long-term care benefits for the premiums paid, because typically it has no value if the policy’s benefits are never used. Additionally, because Mike and Carol are a C-corporation owners, this type of policy may offer additional benefits.

In scenario two, Claire is 61 and Phil is 64. They have significant net worth, and feel they could self-insure, but are concerned about the tax implications if they need to liquidate assets to pay for long-term care expenses. And if needed, they desire to receive any care in their home, even if it is around the clock care. An asset-based long-term care policy can help them create a tax-free pool of benefits to pay for

care expenses when they need them. If they prefer, they can pay for the policy before they retire, either

with a single premium or a limited number of premiums. Asset-based LTC policies are similar to standalone,

but they have a relatively small death benefit that is reduced as benefits are received.

In scenario three, George and Louise are in their late 50s and still have a need for life insurance

protection. Their solution to help pay for potential long-term care expenses is to add a long-term care

or chronic illness rider to a life insurance policy. This gives them income replacement coverage now and

long-term care coverage when they retire. For this type of rider, the monthly benefit is a percentage of

the death benefit, typically 2-4%, for a period of 25-50 months depending on the percentage chosen.

Since these riders typically do not have an inflation component, George and Louise choose a higher

coverage amount to compensate for the potential rising cost of long-term care.

In scenario four, Mary, age 77, is retired and widowed. She was initially concerned that it is too late to

start planning for her own potential care. She can purchase an annuity with long term care benefits, this

option is available up to age 80. It allows her to take tax-free benefits for long-term care expenses. It

also gives her the option, if she does not need benefits to pay for long-term care, to take taxable

withdrawals for living expenses in retirement. While withdrawals will decrease the value of the annuity,

any remaining value, not used for benefits or retirement expenses, will pass to her beneficiaries.

Long-term care coverage can be an important part of retirement planning.

There are many factors that can help determine if you need coverage. For help in determining which

type of coverage may be right for you contact your financial advisor.