When it comes to long-term care, there are two main options: formal and informal. Both have their own set of pros and cons, so how do you know which is right for you? In this guide, we will discuss the key differences between formal and informal long-term care, so that you can make an informed decision about what is best for you or your loved one.
What is Informal Care?
Unpaid care that is generally given by family members or friends is known as informal care. It has long been the most popular long-term care for the elderly
Costs seem to play a key role in the decision to give significant amounts of time each week to informal caregiving and minimize the use of formal care resources whenever feasible. However, caring for someone can be stressful and may lead to health issues.
What Is Formal Care?
A service system is a type of care that includes everyday housekeeping, errands, preparing and cooking meals for the elderly or disabled person. Paid workers or volunteers may be hired as formal caregivers; these organizations could be for-profit or non-profit.
There are a number of different types of organizations that provide formal care. Some examples include:
- Senior centers
- Adult daycare
- charitable groups
- Home health care agencies (custodial care)
- Assisted living facilities
- Intermediate care facilities
- Skilled nursing facilities
- State aging services
- Hospice care
When no suitable informal caregiver is accessible, formal care is selected only to the degree that a patient’s level of care requires more than the informal caregiver’s capacity or expertise.
How Much Does Formal Long-Term Care Cost?
According to Genworth, the 2020 annual median cost for formal long-term care is:
- Homemaker Services: $53,768
- Home Health Aides: $54,912
- Adult Day Care: $19,240
- Assisted Living Facilities: $51,600
- Nursing Home Semi-Private Room: $93,075
- Nursing Home Private Room: $105,850
How To Pay For Formal Long-Term Care At A Fraction Of The Cost
A long-term care annuity is a hybrid annuity that is set up to assist in paying for formal long-term care without causing retirement funds to be depleted. To create a tax-free long-Term Care Insurance benefit, an LTC annuity doubles (200%) or triples (300%) the investment (based on medical records). If there is money in the annuity, it passes along a death benefit to beneficiaries.
If you don’t have a lump sum of money lying around, another great option is a long-term care life insurance policy (LTCi). In simple terms, these policies are designed specifically for long-term care and allow the insured to access the life insurance’s death benefit while alive to pay for LTC costs. Applicants can pay a fixed premium monthly or annually instead of a one-time deposit.