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Long-term care is one of the biggest financial blind spots in retirement planning. About 58% of people falsely believe Medicare will cover the costs, and 57% think that they won’t need care. But what many people fail to realize is that holding these assumptions could end up hurting their financial stability in the long run.

The most important step is not necessarily buying insurance; it’s making sure you’ve addressed the risk. In this episode of Money Wisdom, Nicholas J. Colantuono, CFP® and Eric Hogarth, CFP® discuss when long-term care insurance may make sense.

Understanding the Risk

About 70% of people over the age of 65 will need some form of long-term care. Like many aspects of retirement planning, long-term care does not have a one-size-fits-all solution. As much as you may hope you won’t need coverage, you also must prepare for the worst-case scenario.

The Northeast is one of the most expensive places to receive these services, with annual costs upward of $200,000 for nursing home care. But the good news is that once you understand the risk, you can put a plan in place right away. That plan could be earmarking a portion of your savings or budgeting for a specific type of insurance.

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Who Insurance Makes Most Sense For

Many people who feel passionate about buying long-term care insurance have seen the financial devastation firsthand. Such an event can severely impact a family’s emotional stability, physical health, and financial security. So, while not everyone needs to buy insurance, you should review all your options as soon as possible.

Often, insurance makes sense for people who have assets to protect, but not enough to comfortably cover costs. Even with a large retirement nest egg, you’d be surprised how quickly long-term care costs can erode what took decades to build.

Other people want this type of coverage simply because they don’t ever want to be a burden on their family. Insurance can help relieve the financial responsibility of your kids and protect your hard-earned savings from high costs.

Types of Long-Term Care Insurance

Two main types of long-term care insurance are traditional insurance and hybrid policies. A traditional plan offers dedicated “use it or lose it” coverage. With this policy, you pay ongoing premiums until you need care. However, if you die without requiring care, the insurance company keeps the money you paid in premiums.

On the other hand, hybrid plans are a bit more robust because they incorporate some element of life insurance. If you don’t end up needing long-term care, your heirs will receive the money you paid in as a death benefit. A potential downside is that this type of coverage tends to be more expensive.

The bottom line is that long-term care insurance is one of the most complicated insurance products you’ll encounter. Make sure to consult a professional who specializes in this type of financial planning. They can help you make an informed decision that fits within the context of your broader retirement plan.