In the financial world, it’s generally true that the greater the risk a person takes, the greater the reward will be if the investment makes money. It can be said that the opposite is true with insurance: the greater the risk you take by not buying insurance, the lower your reward will be when the unexpected happens.
This rings true with all types of insurance, including one of the least talked about: long-term care insurance. It’s not until we have a parent or someone we know go into a nursing home that we start considering this type of coverage.
Let’s take a look at long-term care costs and long-term care insurance and see if the reward is worth the risk of not having coverage.
Types of long-term care
Long-term care refers to assisted living where an individual needs the assistance of a caregiver for routine activities of daily living, such as eating, dressing, bathing, toileting, moving about, and taking oral medications at the correct time, in addition to the need for licensed medical care.
Long-term care facilities are often part of skilled nursing facilities, making them ideal for people needing hands-on care and supervision 24/7, but don’t need the specialized care of skilled nursing.
Long-term care is often necessary for patients having:
- Dementia, Alzheimer’s disease, and other cognitive disorders
- Parkinson’s disease and other neurological disorders
- Chronic conditions that limit mobility and the ability to live independently
Long-term care doesn’t provide the same level of medical care as skilled nursing, but if medical practitioners are needed, they’re accessible. Because a long-term care facility is more of a permanent residence than a skilled nursing facility, LTC isn’t usually covered by Medicare or private health insurance.
Cost of long-term care
You can easily be frightened when it comes to LTC costs and the possibility that you may require long-term care.
According to the U.S. Department of Health and Human Services Administration on Aging, most people over 65 will eventually need help with daily living tasks, such as eating, dressing, or bathing. Men will need this assistance for an average of 2.2 years, and women will need it for 3.7 years.
That doesn’t seem like an exceptionally long time, but consider the cost:
- Over one-third of us will spend time in a nursing home, where according to Genworth’s 2018 Cost of Care Survey, the median annual cost of a private room is more than $100,000.
- Four out of ten people will choose to receive paid care at home, and the median annual cost of a home health aide is over $50,000.
- According to a study by Vanguard Research and Mercer Health Benefits, half of people over 65 will incur long-term care costs, and 15% will incur costs exceeding $250,000.
Because Medicare and private health insurance typically don’t cover these “custodial” expenses, Medicaid, the government health program for the indigent, will eventually end up paying for about half of nursing home and custodial care costs. This is after people age 65 to 74 end up spending their entire retirement savings, which has a median value of $126,000.
Cost of long-term care insurance
Now that you know what might lie ahead for you as far as needing long-term care and having seen how exorbitant the costs are, you might be asking yourself how you’ll pay for LTC.
Financial planners advise that everyone evaluating their retirement planning should have a plan in place to deal with long-term care expenses.
Long-term care insurance
According to the American Association for Long-term Care Insurance, the average annual premium for a 55-year-old couple was $3,050 in 2019. Premiums increase as you get older, and those with chronic medical conditions might not qualify for coverage.
LTC policies typically cover a portion of LTC costs for a period of time stipulated in the policy, such as three years. In the past, excessive premium increases forced many people to cancel their policies once they became unaffordable. Many advisors and insurance agents now say LTC insurance is more accurately priced, although premiums are always subject to increase and could rise 50% to 100%.
Hybrid long-term care insurance
Annuities or life insurance with a long-term care benefit are outselling traditional long-term care insurance by a rate of about 4-to-1. With these financial products, money not used for long-term care can be left to heirs. These products often require you to commit a large sum upfront, such as $100,000 in a lump sum or paid in installments over 5 to 10 years. Some products now have “lifetime pay” options with annual payments that average about $7,000.
Learn More: Hybrid Long-Term Care Insurance
Other ways to pay for long-term care
Home Equity
People that permanently move into a long-term care facility may be able to sell their homes to help fund the cost of care. If one member of a couple remains in the home, a reverse mortgage may be an option. These loans allow people to tap into their home equity, but they must be repaid if the owners die, sell, or move out of the home.
Contingency reserve
For someone with substantial savings and investments, some of those assets could be earmarked for long-term care. They could earn interest and produce income until there was a need for LTC and then be sold to pay for a nursing home or home health care.
Spending down to Medicaid
Individuals without much money in savings and who face catastrophic long-term care costs that will wipe out their savings could end up depending on Medicaid. An elder law attorney can help to protect at least some assets for spouses. The National Academy of Elder Law Attorneys can help you with a referral.
Learn More: Alternatives to Long-Term Care Insurance
Should I get long-term care insurance?
Should you buy long-term care insurance? Only you can answer that because of your unique financial situation, but by looking at the odds that you’ll need long-term care and how much it will cost if you do — it appears to be a prudent choice if you can afford it. Check with your financial advisor or a licensed agent specializing in LTC to see if it makes sense for you, either now or in the future.
Learn More: Is Long-Term Care Insurance Worth It?
The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.
