Of those who turn 65 today, 49% of men and 64% of women will need substantial long-term care. Nearly half will require paid services, even though many rely on unpaid help from family members. Long-term care (LTC) insurance is one way to help with the significant problem of covering these costs. The situation has evolved over time, though, as new alternatives have surfaced and policies have grown more costly. Today, we’ll discuss understanding long-term care.
What Long-Term Care Means
In addition to services such as adult day care, assisted living, and nursing home care, long-term care provides assistance with everyday living tasks like eating, dressing, and bathing. The length, location, and level of care will all affect the cost. About 14% of people will need paid care for more than two years on average, and the average cost is $120,900. Preventive planning is necessary to comprehend long-term care.
How to Pay for It
Medicare does not cover long-term care and only pays for limited skilled care after hospitalization. Although the coverage is restricted, certain Medicare Advantage plans might offer minor perks like meal delivery or transportation. Medicaid may help people with extremely low incomes and assets, but most people must spend down their savings to qualify. After that, you’re forced to pay for long-term care with your own money, conventional long-term care insurance, or one of a few other options.
Traditional Long-Term Care Insurance
About 6.1 million Americans were covered by traditional LTC policies in 2022. With these plans, you pay monthly premiums and submit claims as needed, just like with homeowners’ or auto insurance. With regulatory approval, premiums may increase, and your coverage will expire if you cease making payments. Your payments genuinely benefit others if you never use them.
Cognitive decline and the inability to perform specific “activities of daily living” like eating, dressing, bathing, mobility, or continence management are often used to determine eligibility. Benefits are usually subject to daily or lifetime maximums and start after a waiting period, usually 90 days. The cost of policies that provide higher daily payouts or inflation protection is higher.
Only nursing homes were covered by the first policies, which were offered in the 1980s. Insurers understated costs as coverage increased in subsequent decades, leading to significant premium increases. Only a small number of businesses remain in the market, offering more expensive, shorter-term policies. Approximately 75% of policyholders have experienced rate hikes.
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. 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
Long-term financial flexibility and a death benefit are combined in an indexed universal life (IUL) insurance policy. An IUL policy can potentially offer more advantages than traditional life insurance options, such as growth potential linked to market indexes—without the downside risk—in addition to helping you provide for your loved ones. 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 a great potential option for those looking for an additional source of income, such as a means to fund long-term care, as it provides both security and growth.
You and your family may feel less stressed if you prepare in advance and educate yourself on long-term care. By balancing the costs, benefits, and personal priorities, you can develop a plan to safeguard your health, finances, and confidence as you age.
Learn more about IUL (indexed universal life) insurance by clicking here.
*Source: AARP