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Long-term care insurance helps pay for the cost of home healthcare or a nursing home. It also covers extended illness or disability.

While long-term care (LTC) coverage can be great for retirees, premiums have begun to rise in recent years, making it a difficult expense for those on a limited income.

So, how do you determine the best way to prepare for long-term care costs in retirement? Here are two factors you should consider:

Would you prefer a long-term care facility or in-home care?

Before you determine what kind of insurance you want, you need to determine how much LTC will likely cost. A good first step is identifying where you want to live.

The average price to live in a nursing home in our region of the county is more than $140,000 a year ($385 a day) in a semi-private room and $157,000 ($430 a day) in a private room, according to Genworth. By 2030, those costs are projected to be more.

Tour the LTC facilities in your area to see how much they cost and determine whether you can envision living there.

What if you want to live in your own home? You can maintain that comfort and familiarity by hiring someone to come to your house. The average price of in-home care in our region is $55,200 per year. The average price of home healthcare is slightly higher at $56,700 per year.

Should you choose traditional long-term care insurance or a hybrid plan?

Once you decide where you want to live, the next step is to determine whether you can self-insure the cost — essentially figuring out whether you can earmark some of your current assets to pay for these long-term care expenses if needed.

I recommend thinking about this in a what-if context: “If I go into an LTC facility for ‘x’ years at ‘y’ cost, can I pay for this cost without it affecting my other retirement goals?”

If the answer is yes, self-insurance is most likely going to be the most cost-effective and flexible solution to cover a possible long-term care expense.

If the answer is no, but you have substantial liquid assets held outside of qualified retirement accounts, a hybrid LTC insurance policy might be an alternative solution.

These insurance policies are designed to provide LTC benefits. but use whole life insurance as the foundation. After you pay a single up-front premium, the policy pays a specified monthly benefit for LTC for a predetermined number of years.

If you end up not needing LTC, or you decide to stop insuring the risk at any point, you would get your original premium back. Hybrid long-term care policies tend to have a more transparent cost structure and more flexibility than a traditional LTC policy.

Also consider the likelihood of your rates rising during the life of your policy. A report in 2019 claims General Electric does not have enough funds to cover claims for its LTC insurance plans. As a result, the company plans to raise premiums by $1.7 billion over the next 10 years.

Many companies are doing the same thing. In this case, if you are unable to pay your premium, your policy will lapse and you may get nothing back.

I recommend talking to a Certified Financial Planner to determine the best option for you.

Ed. Note: A public relations firm was paid to assist with media placement of this article.

© 2021 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.