You’ve probably heard the sobering statistic that 70% of Americans over age 65 will need some type of long-term care (LTC) during their lifetime.
And for those who do require it, on average women will need 3.7 years of care and men will need 2.2 years.1 What you may not realize, however, is that most of the costs associated with that care aren’t covered by Medicare.
Considering the average annual cost of a nursing home is $106,000 ($55,000 for home health care), a married couple could easily end up spending $400,000 or more if both partners eventually need care.2
And long-term care cost inflation is dramatically outpacing the overall inflation rate.
A Heightened Imperative
One of the unforeseen effects of the pandemic is a greater awareness of the potential for an unanticipated health crisis and the associated increased costs of care. Unfortunately, without some sort of financial protection in place, a single LTC event could potentially wipe out a lifetime’s worth of savings. And like retirement planning, the longer you put off addressing the issue, the fewer choices and less flexibility you’ll have in finding a solution that addresses your needs.
Adding fuel to the fire, care costs have also been driven higher by the pandemic. With long-term care patients facing some of the highest COVID mortality risks, care facilities have had to drastically increase protections and retool processes and procedures—which in turn has translated into higher costs. Even many home health care providers have been increasing their hourly rates to offset higher costs and heightened risks.
Long-Term Care Coverage Options
Essentially, there are three potential approaches to funding the cost of long-term care. You can choose to “self-fund” (i.e., pay any costs out-of-pocket from your savings). You can opt to deplete all your personal assets so you qualify for Medicaid. (please note that in nearly all states, this strategy involves waiting 60 months after depleting all of your assets before applying for Medicaid). Or you can transfer all or part of the LTC risk by purchasing one of the four different types of long-term care insurance:
- Most people are familiar with traditional long-term care insurance (LTCi), which is a policy solely focused on providing benefits if you ever need long-term care. These are typically the most flexible and cost-effective solutions, though premiums have increased on both new and existing policies in recent years. And these policies are designed as “use it or lose it:” if you never need long term care, you or your heirs don’t receive any benefit or return of premium.
- Another option is a hybrid life insurance/ LTC policy, which offers long-term care benefits if you need them, or an income tax-free death benefit to your heirs if you don’t. These products are nearly as flexible as traditional LTC policies, and many have guarantees covering the benefits and the premiums. However, they can be more expensive, at least in the short-term.
- Those who need both life insurance and LTC coverage should also consider a life insurance policy with a long-term care benefit rider. These products also provide both benefits, but typically offer a larger death benefit than the above option. They allow you early access to some or all of the death benefit to cover LTC costs. You’ve probably heard the sobering statistic that 70% of Americans over age 65 will need some type of long-term care (LTC) during their lifetime. And for those who do require it, on average women will need 3.7 years of care and men will need 2.2 years.1 What you may not realize, however, is that most of the costs associated with that care aren’t covered by Medicare. One drawback to this approach, however, is that these policies require full underwriting, as though you were buying separate life insurance and LTC policies. So it’s possible you may not qualify for both types of coverage, depending on your health status.
- A hybrid annuity/LTC contract offers some long-term asset growth as well as long-term care benefits. These single-premium, fixed-interest products can be a good choice for those with an existing annuity, or who prefer a single-premium solution. However, they can be funded only by a single premium payment, typically $100,000 or more, to provide significant benefits. If you have an existing, unneeded annuity, permanent life insurance policy, or cash or CDs, an annuity/LTC hybrid policy may be an attractive option. Another advantage: these products can often cover two spouses with one contract.
Several factors determine a long-term care policy’s cost— including your age, your health, the amount of benefits provided, and the length of the benefit period. The higher your daily benefit (typically this ranges from around $100 to $350) and the longer the benefit period (usually between 2 to 6 years), the greater the monthly premium. Add-ons such as inflation protection typically increase the premium too. Most importantly, the younger and healthier you are when you purchase a policy, the lower your premiums. So the best time to explore LTC coverage options is when you’re in your 50s and 60s and still in good health. Buying a policy while you’re relatively young lets you begin at a lower premium and supplement your coverage over time if desired. But since premiums are determined by your health when you purchase the policy, if you wait until you need coverage, you may not qualify for it at all.
If retaining your independence, protecting your assets, and maintaining your standard of living are all important to you, then now is the time to work with us to put a long-term care risk management plan in place.
Working With Janney
Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.
When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts.
For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.
1- “100 Must-Know Statistics About Long-Term Care: Pandemic Edition,” Morningstar, December 2020
2- Genworth Cost of Care Survey 2020. Home health costs based on 44 hours per week for 52 weeks, Nursing Homes (Private Room).
Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences. Contact us today to discuss how we can put a plan in place designed to help you reach your financial goal.