Long-Term Care Insurance: What You and Your Family Should Know

Long-Term Care Insurance Protects You and Your Assets

When planning for retirement, many may have a blind spot that, if left exposed, could significantly diminish the wealth they are able to leave behind for their families: long-term care.

The need for long-term care (LTC), specifically long-term medical care, is on the rise. Driving this is the confluence of two major trends: the aging of the baby boomer generation and the rise in chronic disease.

Aging Baby Boomers and the Costs of Managing Chronic Illness

In six short years, all baby boomers will be at least 65, and as this generation continues to age, more will develop chronic diseases. The CDC defines chronic disease as “conditions that last one year or more and require ongoing medical attention or limit activities of daily living or both.” The CDC estimates that 60% of adults in the United States have one chronic disease, and 40% have two or more.

Unfortunately, many of these people will eventually need dedicated hands-on care, which can be incredibly expensive. In fact, according to the United States Administration for Community Living (ACL), “Someone turning age 65 today has almost a 70% chance of needing some type of long-term care services and supports in their remaining years.”

For those who require long-term medical care, the costs can be staggering. In their Cost of Care Survey, Genworth estimates the annual median costs for full-time care in 2023 to be $75,504 for a home health aide, $64,200 for care administered through an assisted living facility, and $104,025 for a semi-private room in a nursing home facility.

While the eventual need for long-term care is unavoidable in many cases, particularly in advanced age, there is an option to help offset the significant costs involved: long-term care insurance. For the millions of Americans who do not qualify for Medicaid or have deep financial resources, this insurance can be a viable option to fund long-term medical care and preserve wealth.

What is Long-Term Care Insurance?

Long-term care insurance will benefit anyone unable to care for themselves due to chronic disease, age, or disability.  These policies will include coverage for medical care and services like at-home food preparation, eating, bathing, and dressing.

Long-term care insurance will also generally include lump-sum payouts for a cognitive impairment diagnosis like dementia. With over 30% of US adults 65 and older having dementia or mild cognitive impairment, this is an important consideration.

Is Long-Term Care Insurance Right for You?

When deciding whether or not long-term care insurance is necessary for you, there are two critical factors to consider: personal risk and existing health insurance gaps.

Personal Risk

In order to assess your risk, review your current health status and lifestyle with your physician. Make particular note of any chronic disease or lifestyle habits detrimental to your health.

According to the CDC, chronic disease includes conditions like heart disease, cancer, and diabetes, many of which are caused by lifestyle factors like poor nutrition, low physical activity, and tobacco use.

A common financial consideration with insurance products generally is the ‘return on investment.’ You purchase insurance with the hope you will never need it,  but with the knowledge you will be secure when you do.

For perspective on this point, consider that if you have to spend time in a nursing home facility at some point in your life, the total cost of all your premium payments combined will almost certainly be less than the cost of a single year in such a facility — no matter how many years you’ve been paying premiums.

Existing Health Insurance Gaps

In addition to assessing your risk, carefully review your existing health insurance plan and consider any changes in provider, plan, or coverage you may make as you age.

According to the ACL, there is confusion around long-term care coverage in both the private and public insurance markets, so it is best to pay close attention to the fine details.

For example, ACL notes that Medicare will not cover the cost of non-skilled assistance with bathing, dressing, eating and other activities of daily living (ADL), which comprise the majority of long-term care services. ACL adds that “most employer-sponsored or private health insurance, including health insurance plans, cover only the same kinds of limited services as Medicare.”

Purchasing Long-Term Care Insurance

If you ultimately decide to pursue long-term care insurance, it is wise to take a detailed and realistic financial inventory and discuss your motivations with family members.

Keep in mind, too, that long-term care insurance premiums increase as you age and that the longer you wait, the greater the chance of being rejected for coverage because of factors like a pre-existing medical condition. Generally, most experts suggest that it is best to purchase coverage in your mid-fifties and 60 at the very latest.

Remember, long-term care insurance is complicated. There are a variety of coverage plans to choose from on the market, many of which are seemingly indistinguishable from one another. Having a financial planner or insurance broker by your side will be key.

Understanding Long-Term Care Insurance

Below are a few major points to keep in mind as you navigate the research and purchase process with your insurance specialist:

Cost of Care

To estimate coverage needs, multiply the number of years of coverage you would like by the current cost of nursing home care.

The Genworth Cost of Care Survey is an excellent resource here. For context, most experts suggest that the average amount of time spent in a nursing home is about three years. A longer policy will naturally incur larger costs to the insurer, which will, in turn, raise the monthly premiums.

Term

Buy a policy you can hold long-term. The National Association of Insurance Commissioners (NAIC) suggests that you spend no more than 7% of your income on premiums. It is important to choose a policy that you can maintain sustainably throughout both your working and retired life.

Policy Riders

Depending on the insurer and plan, there will be a variety of policy riders to consider, which can give you flexibility and added protections. Five of the most common riders are inflation protection, spousal benefits, survivorship benefits, return of premium, and cash benefits.

Elimination Period

When comparing plans, it is important to carefully consider the ‘elimination period,’ which is defined as the period during which you are personally responsible for the cost of care. Typically, the minimum elimination period is 30 days. The shorter the elimination period, the higher the policy will cost.

Protecting Your Estate—And Your Family

Long-term care is an investment that you may be fortunate enough not to cash in on, depending on your health as you age. However, the very planning itself can be considered money well spent for a family’s long-term financial well-being. By securing coverage for the cost of chronic illnesses and long-term care, families can maintain an estate for a surviving spouse and children.

According to Marion Asnes, the former Editor-in-Chief of Financial Planning magazine and current president of Idea Refinery LLC, a consultancy for independent financial advisors, long-term insurance is a critical part of estate planning. Asnes advises that the right policy “can make the difference between living out your life in the most comfortable way possible or becoming, in the worst-case scenario, a tough responsibility for your family or a ward of the state.”

Proactively planning for long-term care is often a family discussion involving your trusted financial advisor. Talking about aging and the possibility of chronic illness isn’t easy for most of us. But the sooner this conversation is started, the better.  To learn more about long-term care insurance, visit LongtermCare.gov.

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[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

•   Why Green Investing?
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This is an updated version of an article originally published on March 27, 2019, and recently republished on May 7, 2021.]

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