Health Insurance in Retirement: A Path Through the Labyrinth

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Insurance is one of those ‘it’s for other people, not us’ types of services. You appreciate the value, but you don’t think you need it, not today anyway. But, have you ever heard anyone complain about owning insurance—think about homeowner’s insurance or car insurance. And yes. Think about life insurance.

Let’s set the stage. You’re preparing for retirement down the road, and overall, you’ve planned well. But what if you’re faced with an unexpected health issue? Fidelity Investments estimates that the average 65-year-old couple with Medicare will spend a scary $280,000 out of pocket on health care in their retirement.

Medicare: Not a Panacea

Medicare has been a godsend for most seniors, but it’s not the be-all and end-all. For one thing, there are many services that Medicare and its various supplementary plans don’t cover—long-term care among them. Meanwhile, the latest estimate is that 69% of those turning 65 this year will at some point need long-term care. Consider this: the median annual cost of nursing home care is almost $86,000; in Connecticut, it’s $150,000.

What to do?

Long-Term Care Insurance: Protection at a Price

One answer to the long-term care problem is to self-insure: hold aside enough money to fund at least several years of care. But for many, purchasing long-term care insurance is a better route—either as a stand-alone policy, often through an employer, or as an add-on to certain life-insurance policies.

With long-term care insurance, you’ll have coverage up to a specified daily and lifetime maximum. The more you want, the more you’ll pay in premiums. Covered services usually include some or all of nursing-home care, assisted living, home care, and adult daycare. As for premiums, one industry source gives the latest-available average at $2,700 annually. Age matters (a lot): The younger you are when you buy the policy, the less you’ll pay.

Be aware: Your premium is likely to increase over time. Coverage is almost never limitless. And if you have a pre-existing condition, coverage may be denied or limited, and your premium will be higher. There are other solutions like hybrid long-term-care products and riders that may be less expensive and may remove the risk of increasing premiums.

There’s More: Critical-Illness Coverage

For additional protection, you may be able to buy a critical-illness policy, which will provide you with a lump-sum payment or a specified income stream for otherwise-uncovered costs related to major diseases like cancer, heart disease, stroke, and Alzheimer’s.

Be aware: The list of covered illnesses varies by policy, and as with long-term care insurance, premiums are likely to escalate as you get older. If your health is found wanting, you may be unable to buy a policy.

The Bottom Line

Health insurance in retirement is a complicated business, and what’s right for you depends on your needs, preferences, and financial profile. But we’d offer three pieces of general advice:

  • Planning is the key—the earlier, the better.
  • Know what any policy you’re considering covers, and what it doesn’t.
  • Don’t try to negotiate the maze alone; consult with an expert in health insurance.

Come see us at People’s United Bank. We’ll work with your health insurance professional in the context of your full financial picture. Or, we’ll introduce you to our insurance professionals at People’s Securities, Inc.

People’s United Advisors can help

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