What Is Long-Term Care?
As people age or become ill, they sometimes need help doing daily tasks like getting dressed, bathing and more. Long-term care (LTC) provides people with those services—but it’s expensive. According to the Alzheimer’s Association, the estimated cost for end-of-life care in 2016 ranged between $217,820 and $341,651.(1) Most health and disability insurances won’t cover long-term care, but long-term care insurance will.
What Does Long-Term Care Insurance Cover?
• Nursing home care
• Assisted living facilities
• Adult day care services
• In-home care
• Home modification
• Care coordination
Why You Need Long-Term Care Insurance
Did you know that 52% of people turning 65 today will need long-term care at some point? Purchasing long-term care insurance can help you have peace of mind. You’ll know that if you become ill, you can afford the care you need and still have enough money for you and your spouse to eat. Plus, your kids won’t be burdened with huge payments for your care.
Now you may be thinking: What about government programs? Can’t they help? Don’t make the mistake of believing Medicare will cover long-term care costs. It doesn’t. And while Medicaid—the government program designed for people who truly don’t have any money—will cover long-term care expenses, it should never be your first choice. Doctors all over the country are reducing the number of Medicaid patients they accept each year, making access to healthcare far more difficult for Medicaid recipients than those with private insurance.(3)
Types of Long-Term-Care Insurance
Traditional Long-Term-Care Insurance
The median cost of a semiprivate nursing home room nationwide is $85,775 per year, according to Genworth’s 2017 Cost of Care Survey. Assisted living runs $45,000 annually, and home health aides charge $135 per day.(4) Traditional long-term care insurance ensures that no matter where you need care, you’ll have the money to cover at least a portion of the bill. A lengthy stay at a nursing home is less likely to drain your savings or wipe out your estate.
According to a LifePlans, Inc. survey, the average annual long-term care insurance premium is $2,727. That provides a benefit of $161 per day for nursing home care for a set number of years (four is most common).(5) Even better, you can include an inflation rider that increases your daily benefit over time, typically by 3% a year. The policy is triggered when you can no longer perform two out of six activities of daily living such as dressing, bathing, eating, transferring to a wheelchair, etc., or suffer from severe cognitive impairment. Benefits start after a waiting period of 30–90 days.
Hybrid Life and Long-Term Care Policies
Another increasingly popular option is a policy that combines life insurance with long-term care coverage. With a hybrid policy, you can access the death benefit—the money that your beneficiaries would receive in the event of your death—while you are still alive to pay for long-term care . And if you end up not needing care, your heirs get the full payout. Rates are considered “noncancellable,” which means premiums are fixed for life (and often paid all at once up front). Hybrid policies should be a last resort and only used if you can’t qualify for a traditional long-term care insurance policy due to medical underwriting.
A single premium means you’ll have to come up with tens of thousands of dollars at once—money you could have otherwise invested for retirement. You may also be buying life insurance you don’t need. And, unlike traditional long-term care insurance, the premiums for hybrid policies are not tax-deductible.
Similar to whole life insurance, the biggest risk of these hybrid policies is that you could forego thousands of dollars in potential earnings on your investment. The policies don’t guarantee that you’ll earn market rates; the benefit paid is only the face value of the policy. Those lost earnings could end up making hybrids the most expensive long-term care policy of all.