Roughly 49% of men and 64% of women turning 65 today will need significant long-term care. While many rely on unpaid help from relatives, nearly half will require paid services. Covering these costs is a considerable challenge, and long-term care (LTC) insurance is one option. However, the landscape has shifted with time, policies have become more expensive, and new alternatives have emerged. Today, we discuss understanding long-term care.
What Long-Term Care Means
Long-term care is there to cover support with daily living activities, such as bathing, dressing, eating, and transportation, as well as services like adult day programs, assisted living, and nursing home care. Costs vary depending on the duration, location, and intensity of care. On average, about 14 percent of people will need over two years of paid care, with expenses averaging $120,900. Planning ahead is essential for understanding long-term care.
How to Pay for It
Medicare covers only limited skilled care after hospitalization and does not pay for long-term assistance. Some Medicare Advantage plans may add small benefits like meal delivery or transport, but coverage is minimal. Medicaid may help those with very low income and assets, though eligibility usually requires depleting most savings. That leaves individuals to pay through personal resources, traditional long-term care insurance, or newer hybrid policies.
Traditional Long-Term Care Insurance
In 2022, about 6.1 million Americans held traditional LTC policies. These plans resemble auto or homeowners insurance: you pay ongoing premiums and file claims when you need services. Premiums can rise with regulatory approval, and if you stop paying, coverage lapses. If you never use benefits, your payments effectively subsidize others.
Eligibility often depends on an inability to perform certain “activities of daily living” — bathing, dressing, eating, mobility, or managing continence — or having cognitive decline. Benefits usually start after a waiting period (often 90 days) and are capped by daily or lifetime maximums. Policies with inflation protection or higher daily payouts cost more.
The first policies, sold in the 1980s, covered only nursing homes. As coverage broadened in later decades, insurers underestimated costs, forcing steep premium hikes. Many companies exited the market, leaving only a few that now sell shorter-duration, higher-priced policies. Roughly three-quarters of policyholders have experienced 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
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 is a type of life insurance policy that provides both a death benefit and long-term financial flexibility. In addition to serving its purpose of providing for your loved ones, an IUL policy can offer additional benefits compared to standard life insurance options, such as providing growth potential tied to market indexes—without the downside risk. Interest is credited based on market performance, but your principal remains protected, backed by the claims-paying ability of the carrier. This blend of security and growth makes an IUL policy ideal for those seeking an extra source of income, such as a means to fund long-term care.
Planning ahead and understanding long-term care can ease the burden on both you and your family. By weighing costs, benefits, and personal priorities, you can build a strategy that protects your health, finances, and peace of mind as you age.
Learn more about IUL (indexed universal life) insurance by clicking here.
*Source: AARP