Approximately 49% of men and 64% of women turning 65 today will require extensive long-term care. While many rely on unpaid assistance from family members, over half will require paid services. Covering these costs is a major concern, but long-term care (LTC) insurance is one solution. However, the situation has changed over time, policies have become more expensive, and new options have developed. Today’s topic is 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 programs, assisted living, and nursing homes. Costs vary depending on the length, location, and intensity of treatment. On average, approximately 14% of people will require more than two years of paid care, with expenses totaling $120,900. Understanding long-term care requires careful planning ahead of time.
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 provide minor perks such as meal delivery or transportation, but the coverage is limited. Medicaid may assist persons with very limited income and assets, although eligibility typically necessitates draining most reserves. Individuals must then pay for long-term care using personal funds, traditional long-term care insurance, or newer hybrid policies.
Traditional Long-Term Care Insurance
In 2022, approximately 6.1 million Americans possessed traditional long-term care policies. These policies are similar to auto or homeowners insurance: you pay monthly payments and file claims when you require services. Premiums might climb with regulatory permission, and if you stop paying, your coverage lapses. If you never utilize benefits, your contributions essentially support others.
Eligibility is frequently determined by an incapacity to do particular “activities of daily living” (e.g., bathing, dressing, eating, mobility, or continence management) or by cognitive impairment. Benefits usually begin after a waiting period (commonly 90 days) and are limited by daily or lifetime maximums. Policies that safeguard against inflation or provide bigger daily payouts are more expensive.
The original plans, available in the 1980s, only covered nursing facilities. As coverage expanded in later decades, insurers underestimated expenses, resulting in high price increases. Many companies left the market, leaving only a few that now sell shorter-term, more expensive policies. Roughly 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, given that new policies later in life are often unaffordable.
Most experts recommend holding onto older, more generous plans if you’re able. Still, some clients scale back benefits to manage costs.
Deciding Whether to Buy
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 practical given the cost.
- Financial outlook: Some people self-fund by downsizing their homes, using reverse mortgages, or creating “longevity funds” to cover costs.
- Goals: If leaving an inheritance is important, insurance may protect your 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 looking into policies in your 50s.
Understanding long-term care requires weighing not only whether to purchase insurance but also how it aligns with your broader financial goals.
Paying for a Policy Using An IUL
An indexed universal life (IUL) insurance policy offers both a death benefit and long-term financial flexibility. In addition to providing for your loved ones, an IUL policy can provide extra benefits compared to traditional life insurance options, such as growth potential linked to market indexes—without the downside risk. Your principal is protected (backed by the claims-paying ability of the carrier), while interest is credited based on market performance. An IUL policy is suitable for individuals seeking an additional source of income, such as funding long-term care, due to its combination of security and growth potential.
Planning ahead and understanding long-term care can help you and your family. You may create a strategy for protecting your health, finances, and peace of mind as you age by considering costs, benefits, and personal priorities.
*Source: AARP