Approximately 49% of men and 64% of women who turn 65 today will require significant long-term care. While many people rely on unpaid assistance from relatives, nearly half will need paid services. Covering these costs is a significant challenge, and long-term care (LTC) insurance is one solution. However, the landscape has changed over time, as policies have become more expensive and new alternatives have emerged. Today, we’ll talk about understanding long-term care.
What Long-Term Care Means
Long-term care provides assistance with daily living activities such as bathing, dressing, eating, and transportation, as well as services such as adult day care, assisted living, and nursing home care. Costs vary according to the length, location, and intensity of care. On average, approximately 14% of people will require more than two years of paid care, with costs averaging $120,900. Understanding long-term care requires proactive planning.
How to Pay for It
Medicare only covers limited skilled care following hospitalization and does not pay for long-term care. Some Medicare Advantage plans may include small benefits such as meal delivery or transportation, but the coverage is limited. Medicaid may benefit those with very low incomes and assets, but eligibility usually necessitates depleting most savings. Individuals must then pay for long-term care using their own funds, traditional long-term care insurance, or newer hybrid plans.
Traditional Long-Term Care Insurance
In 2022, approximately 6.1 million Americans had traditional LTC policies. These plans are similar to auto or homeowners insurance in that you pay monthly premiums and file claims as needed. Premiums can rise with regulatory approval, and if you stop paying, your coverage will lapse. If you never use your benefits, your payments effectively help others.
Eligibility is frequently determined by an inability to perform certain “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 (often 90 days) and are limited by daily or lifetime maximums. Policies that protect against inflation or offer higher daily payouts are more expensive.
The initial policies, sold in the 1980s, only covered nursing homes. As coverage expanded in later decades, insurers underestimated costs, resulting in significant premium increases. Many companies left the market, leaving only a few that now offer shorter-term, higher-cost policies. About 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 Buy
Purchasing long-term care insurance is a one-time choice with long-lasting impact. Key considerations include:
- Budget: Premiums should not exceed approximately 7% of income.
- Assets: Policies are most beneficial to those who have $75,000 or more in savings (excluding their primary residence). Insurance may be prohibitively expensive for assets worth less than $30,000.
- Financial outlook: Some people self-fund by downsizing their homes, obtaining reverse mortgages, or establishing “longevity funds” to cover aging expenses.
- Goals: If leaving an inheritance is important, insurance can help protect assets. Others may prefer to use up their resources.
- State regulations affect insurance prices and availability.
- Age and health: The younger and healthier you are, the less expensive it is to qualify. Insurers may require examinations or health screenings. Experts recommend that you consider policies in your fifties.
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 combines a death benefit with long-term financial flexibility. In addition to serving the purpose of providing for your loved ones, an IUL policy can provide additional benefits over traditional life insurance options, such as growth potential tied 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 looking for an additional source of income, such as a means to fund long-term care.
Planning ahead of time and learning about long-term care can help you and your family feel less overwhelmed. You can create a strategy to protect your health, finances, and give you more confidence as you age by weighing the costs, benefits, and personal priorities.
Learn more about IUL (indexed universal life) insurance by clicking here.
*Source: AARP