Approximately 49% of men and 64% of women turning 65 today will need extensive long-term care. While many people receive unpaid assistance from relatives, nearly half will require paid services. Covering these costs is a significant challenge, but long-term care (LTC) insurance may provide a viable solution. However, the landscape has shifted over time, with policies becoming more expensive and new alternatives emerging. Today, we will discuss long-term care.
What Long-Term Care Means
Long-term care helps with daily activities like bathing, dressing, eating, and transportation, as well as services like adult day care, assisted living, and nursing home care. Costs vary depending on the duration, location, and intensity of care. On average, 14% of people will require more than two years of paid care, costing an average of $120,900. Understanding long-term care necessitates proactive planning.
How to Pay for It
Medicare only pays for limited skilled care after hospitalization, not long-term care. Some Medicare Advantage plans may offer minor benefits like meal delivery or transportation, but their coverage is limited. Medicaid may help those with very low incomes and assets, but eligibility usually means depleting most savings. Individuals must then pay for long-term care out of pocket, either through traditional long-term care insurance or newer hybrid plans.
Traditional Long-Term Care Insurance
In 2022, approximately 6.1 million Americans had traditional long-term care policies. These plans operate similarly to auto or homeowners insurance in that you pay monthly premiums and file claims as needed. Premiums may increase with regulatory approval, and if you stop paying, your coverage will lapse. If you never use your benefits, your payments will benefit others.
Eligibility is frequently determined by an inability to perform specific “activities of daily living” such as bathing, dressing, eating, mobility, or continence management, as well as cognitive decline. Benefits typically begin after a waiting period (usually 90 days) and are subject to daily or lifetime limits. Policies that prevent inflation or provide higher daily payouts are more expensive.
The original policies, sold in the 1980s, only covered nursing homes. As coverage grew in subsequent decades, insurers underestimated costs, resulting in significant premium increases. Many companies exited the market, leaving only a few to offer shorter-term, higher-cost policies. Approximately three-quarters of policyholders have seen rate increases.
If You Already Own a Policy
Policyholders facing premium hikes have a few options:
- Pay the higher rate and keep original benefits.
- Reduce benefits but maintain the old premium.
- Avoid dropping coverage entirely, as new policies later in life are often unaffordable.
Most experts recommend holding onto older, more generous plans if possible. Still, some clients scale back benefits to manage costs.
Deciding Whether to Purchase
Buying long-term care insurance is a one-time choice with lifelong impact. Key considerations include:
- Budget: Premiums shouldn’t exceed about 7 percent of income.
- Assets: Policies are most useful for those with $75,000 or more in savings (excluding a primary home). With under $30,000 in assets, insurance may not be cost-effective.
- Financial outlook: Some people self-fund by downsizing homes, using reverse mortgages, or creating “longevity funds” to cover aging costs.
- Goals: If leaving an inheritance is important, insurance may protect assets. Others may prefer to spend down their resources.
- State rules: Because states regulate insurance, prices and availability vary.
- Age and health: The younger and healthier you are, the cheaper it is to qualify. Insurers may require exams or health screenings. Experts suggest considering policies in your 50s.
Understanding long-term care requires weighing not only whether to purchase insurance but also how it aligns with broader financial goals.
Paying for a Policy Using An IUL
An indexed universal life (IUL) insurance policy provides both a death benefit and long-term financial flexibility. In addition to providing for your loved ones, an IUL policy can offer additional advantages over traditional life insurance options, such as growth potential linked to market indexes—without the downside risk. Interest is credited based on market performance, but your principal is protected (backed by the claims-paying ability of the carrier). This combination of security and growth makes an IUL policy ideal for those seeking an additional source of income, such as funding for long-term care.
Planning ahead of time and learning about long-term care can make you and your family feel less stressed. By weighing the costs, benefits, and personal priorities, you can develop a strategy to protect your health and finances while also increasing your confidence as you age.
Learn more about IUL (indexed universal life) insurance by clicking here.
*Source: AARP