Among those turning 65 today, 49% of men and 64% of women will require extensive long-term care. Although many rely on unpaid assistance from family members, almost half will need paid services. Long-term care (LTC) insurance is one approach to addressing the significant issue of covering these costs. The situation, however, has changed over time as new alternatives have emerged and policies have become more expensive. Today, we’ll talk about understanding long-term care.
What Long-Term Care Means
Long-term care is designed to help with adult day care, assisted living, and nursing home care, as well as basic daily activities such as eating, dressing, and bathing. The cost will vary depending on the length, location, and level of care provided. Approximately 14% of people will require paid care for more than two years on average, with an average cost of $120,900. Preventive planning is essential for understanding long-term care.
How to Pay for It
Medicare does not cover long-term care and only pays for limited skilled care following hospitalization. Although the coverage is limited, some Medicare Advantage plans may provide minor benefits such as meal delivery or transportation. Medicaid may benefit people with extremely low incomes and assets, but most must deplete their savings to qualify. Following that, you must pay for long-term care using your own money, traditional long-term care insurance, or one of a few other options.
Traditional Long-Term Care Insurance
Traditional long-term care insurance policies covered approximately 6.1 million Americans in 2022. These plans require you to pay monthly premiums and submit claims as needed, similar to homeowners’ or auto insurance. Premiums may rise with regulatory approval, and if you stop paying, your coverage will expire. Your payments benefit others even if you never use them.
Cognitive decline and the inability to perform specific “activities of daily living” such as eating, dressing, bathing, mobility, and continence management are frequently used to determine eligibility. Benefits are usually limited to daily or lifetime maximums and begin after a waiting period of 90 days. Policies with higher daily payouts or inflation protection cost more.
The first policies, issued in the 1980s, only covered nursing homes. Insurers underestimated costs as coverage increased in subsequent decades, resulting in significant premium increases. Only a few businesses remain in the market, providing more expensive, short-term policies. Approximately 75% 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.
Experts generally\ 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. With under $30,000 in assets, insurance may not be worth it.
- 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 help protect your assets. Others may prefer to spend down their resources.
- State rules: Because states regulate insurance, prices and availability vary from state to state.
- 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 or not you should 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 provides long-term financial flexibility as well as a death benefit. An IUL policy may provide more benefits than traditional life insurance options, such as growth potential linked to market indexes (without the risk of suffering a loss), in addition to assisting you in providing for your loved ones. Your principal is protected (backed by the claims-paying ability of the carrier), and interest is credited based on market performance. An IUL policy is an excellent option for those seeking an additional source of income, such as funding long-term care, because it offers both security and growth.
Preparing ahead of time and learning about long-term care can help you and your family feel less stressed. By weighing the costs, benefits, and personal priorities, you can devise a strategy to protect your health and finances, and give you more confidence as you enter retirement.
Learn more about IUL (indexed universal life) insurance by clicking here.
*Source: AARP
