It’s difficult to predict what your medical needs will be years down the road, but a long-term care insurance policy can serve as a safety net, providing financial relief for your family should you or a loved one require a higher level of care.
Long-term care (LTC) insurance is designed to help cover the costs associated with care as we age. This can include nursing home care, in-home care, adult daycare, and assisted living facilities, among other services not typically covered by traditional health insurance or Medicare. In this guide, we’ll cover what you need to know in order to make an informed decision regarding long-term care coverage for yourself or a loved one.
Why is LTC Insurance Important?
As we age, the likelihood of us needing some form of long-term care grows, particularly as life expectancies increase. In fact, it’s estimated that 70% of American seniors will require long-term care services at some point in their lives, with 20% of seniors requiring more than 5 years of care.
Chronic illnesses, disability, or cognitive issues like Alzheimer’s may necessitate daily assistance, which can be financially burdensome for you and your loved ones. Medicare typically doesn’t cover these long-term services, which means you’ll likely have to pay for them out of pocket. LTC insurance not only helps ensure access to necessary care without draining your savings, but it also offers more choices when it comes to the type of care received and where it’s provided. Moreover, it can alleviate the financial and emotional stress felt by family members who might otherwise bear the responsibility of care.
Long-Term Care Options
There’s no one-size-fits-all solution to long-term care planning and a number of different policies exist to fit your unique needs. Here are some of the options available for you to choose from:
Traditional Long-Term Care Insurance. This type of policy pays out a pre-determined amount for each day of care, up to a maximum limit specified in the agreement. While these policies typically offer the most comprehensive coverage, they can entail high premiums and have a “use it or lose it” structure, meaning if you don’t use the benefits, you don’t get your premiums back.
Hybrid Long-Term Care Insurance. These policies combine life insurance or an annuity with long-term care coverage. If you don’t use the long-term care benefit, the policy pays a death benefit to your beneficiaries. Hybrid policies
often have a “return of premium” feature, which ensures the money you invest isn’t lost if you don’t use the policy.
Shared Care Policies. These are for couples who want to share their coverage. If you exhaust your benefits, you can start using your partner’s, and vice versa.
Life Insurance with Long-Term Care Riders. Some life insurance policies offer riders that allow the policyholder to use a portion of the death benefit for long-term care expenses.
Partnership Policies. These allow policyholders to retain a portion of their assets and still qualify for Medicaid if their long-term care insurance benefits are exhausted.
Short-Term Care Insurance. These policies are similar to traditional long-term care insurance policies, but benefits typically only last for up to a year. They are usually easier to qualify for and entail lower premiums.
Shopping For Long-Term Care Insurance
As you assess your LTC coverage options, here are some questions to help guide your search.
What Will Your Needs Be? It’s impossible to forecast exactly what your care needs will be, but you can get a good sense of them by considering your health, family history, and whatever support you may receive from friends and family. When picking a type of coverage, you’ll likely want to balance your anticipated needs with how much you’re willing to spend on premiums.
Do You Understand the Costs? Premiums typically vary based on your age, health, benefit amount, benefit period, and elimination period you choose. The costs associated with each type of coverage can range drastically based on these factors.
Who is the Best Provider for You? Before committing to a policy, remember to research the various providers to find the one you’re most comfortable with. As you conduct your search, keep an eye out for companies with strong financial ratings and positive customer reviews.
Could You Use Professional Advice? The LTC insurance landscape can be complex and difficult to navigate. A financial advisor or insurance professional can work with you to assess your current and future care needs, then help you identify a coverage option that suits you.
Planning for Long-Term Care
As with any major decision, seeking the guidance of a financial professional can help you gain a clear understanding of your options and then create a plan that fits within the context of your broader financial picture. Planning for healthcare needs and ensuring you have the right coverage in place can be tricky, but an advisor can simplify the process while affording you the confidence of knowing your family’s interests are protected.
Best,
Robert (Rory) J. O’Hara III, CFP®, CRPC®
Founder I Senior Managing Partner
This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.
Endnotes
1 “How Much Care Will You Need?” How Much Care Will You Need? | ACL Administration for Community Living, February 18, 2020. https://acl.gov/ltc/basic-needs/how-much-care-will-you-need.
