Purchasing long-term care insurance can help you have peace of mind.  If you become ill, you can afford the care you need and still have enough money for you and your spouse plus, your kids won’t be burdened with huge payments for your care.  

Long-Term Services and Supports (LTSS) needs are expensive which often leads to financial hardship.  Public programs like Medicare do not generally cover LTSS  costs, and relatively few people have private insurance coverage that can help defray expenses.  Many older people with severe LTSS needs rely exclusively on family and unpaid caregivers. 

Even if older adults liquidated all their available household wealth, including any vehicles, businesses, and real estate they might own except for their primary residence, about one-quarter would be unable to fund two years of paid home care.  The unaffordability of paid home care limits older adults the ability to remain at home longer (where most prefer to live) instead they will need to move into a assisted living or a nursing home and qualifying for Medicaid after their financial resources run out.

2. Alzheimer’s and long-term care.

According to the Alzheimer’s Association, the estimated cost for end-of-life care in 2016 ranged between $217,820 and $341,651.

3.  Most health and disability insurances will not cover long-term care, but long-term care insurance will.  What exactly does long-term care cover?  Long-term care refers to the ongoing services and support needed by people who have chronic health conditions or disabilities.  There are three levels of long-term care:

Skilled care: Generally round-the-clock care that’s given by professional health care providers such as nurses, therapists, or aides under a doctor’s supervision.

Intermediate care: Also provided by professional health care providers but on a less frequent basis than skilled care.

Custodial care: Personal care that’s often given by family caregivers, nurses’ aides, or home health workers who provide assistance with what are called “activities of daily living” such as bathing, eating, and dressing.

Long-term care is not just provided in nursing homes, the most common type of long-term care is a home based care.  Long-term care services may also be provided in a variety of other settings, such as assisted living facilities and adult day care centers.  More than one-third will spend time in a nursing home, where the median annual cost of a private room is now over $100,000, according to insurer Genworth’s 2018 Cost of Care Survey**.   Four out of 10 will opt for paid care at home, and the median annual cost of a home health aide is over $50,000**.  Overall, half of people over 65 will incur long-term care costs, and 15% will incur more than $250,000 in costs, according to a study by Vanguard Research and Mercer Health and Benefits**.

4. Why is it important to plan for long-term care?

No one expects to need long-term care, but it’s important to plan for it nonetheless and the odds of needing long-term care are high.  Here are two important reasons why it is important to plan:

Approximately 70% of people will need long-term care at some point during their lifetimes after reaching age 65.

Approximately 8% of people between ages 40 and 50 will have a disability that may require long-term care services.*

5. The cost of long-term care can be expensive.

For many, the cost of long-term care can be expensive, absorbing income and depleting savings.  Some of the average costs in the United States for long-term care (2019) include:

$7,513 per month, or $90,156 per year for a semi-private room in a nursing home.

$8,517 per month, or $102,204 per year for a private room in a nursing home.

$4,051 per month for a one-bedroom unit in an assisted living facility.

$23 per hour for a home health aide.

*U.S. Department of Health and Human Services, April 4, 2019.

Many people are frightened of long-term care costs — for a good reason and they will rely on unpaid care from spouses or children.  More than one third will spend time in a nursing home and half of people over 65 will incur long term care costs.

6. Doesn’t Medicare pay for long-term care?

Many people mistakenly believe that Medicare, the federal health insurance program for older Americans, will pay for long-term care.  Medicare won’t help!  Medicare and private health insurance typically don’t cover these “custodial” expenses, which can quickly wipe out the $126,000 median retirement savings for people age 65 to 74.  People who exhaust their savings could wind up on Medicaid, the government health program for the indigent that pays for about half of all nursing home and custodial care.

Medicaid, which is often confused with Medicare, is the joint federal-state program that two-thirds of nursing home residents currently rely on to pay some of their long-term care expenses.  But to qualify for Medicaid, you must have limited income and assets.  Although Medicaid generally covers nursing home care, it provides only limited coverage for home health care in certain states.  People who live alone, are in poor health or who have a family history of chronic conditions have a greater-than-average likelihood of needing long-term care.  Women face special risks, since we tend to outlive our husbands and thus may not have anyone to provide unpaid care.  If our husbands need paid care that wipes out our savings, we could face years or even decades living on nothing but Social Security.

7. Can’t I pay for care out of pocket?

The major advantage to using income, savings, investments, and assets (such as your home) to pay for long-term care is that you have the most control over where and how you receive care.  The cost of long-term care is high, which means that you may have trouble affording extended care if you need it.  Understandably, many people put off planning for long-term care.  But although it’s hard to face the fact that health problems may someday result in a loss of independence, if you begin planning now, you’ll have more options open to you in the future.

8. Should I buy long-term care insurance?

Like other types of insurance, long-term care insurance protects you against a specific financial risk–in this case, the chance that long-term care will cost more than you can afford.  In exchange for your premium payments, the insurance company promises to cover part of your future long-term care costs.  Long-term care insurance can help you preserve your assets and guarantee that you’ll have access to a range of care options. However, it can be expensive, so before you purchase a policy, make sure you can afford the premiums both now and in the future.

The cost of a long-term care policy depends primarily on your age (in general, the younger you are when you purchase a policy, the lower your premium will be), but it also depends on the benefits you choose.  The average cost can be $227.25 a month.  If you decide to purchase long-term care insurance, here are some of the key features to consider:

• Benefit amount: The daily benefit amount is the maximum your policy will pay for your care each day, and generally ranges from $50 to $350 or more.  
• Benefit period: The length of time your policy will pay benefits (e.g., 2 years, 4 years, lifetime).
• Elimination period: The number of days you must pay for your own care before the policy begins paying benefits (e.g., 20 days, 90 days).
• Types of facilities included: Many policies cover care in a variety of settings including your own home, assisted living facilities, adult day care centers, and nursing homes.
• Inflation protection: With inflation protection, your benefit will increase by a certain percentage each year. It’s an optional feature available at additional cost, but having it will enable your coverage to keep pace with rising prices.

Deductions for Long-Term Care Insurance Premiums: 2019, 2020:

Age	2019 Limit	2020 Limit
40 or under	$420	$430
41-50	$790	$810
51-60	$1,580	$1,630
61-70	$4,220	$4,350
70+	$5,270	$5,430

9.  What Does Long-Term Care Insurance Cover?

• Nursing home care
• Assisted living facilities
• Adult day care services
• In-home care
• Home modification
• Care coordination

Types of Long-Term-Care Insurance

10a.  Traditional Long-Term-Care Insurance

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 with long-term care insurance.

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).  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.  Want to make sure your family is covered no matter what happens?  Check on your coverage before it becomes an emergency.

10b.  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.

Many people worry that if they wait until age 60 to buy LTC, they will develop a medical condition that will either prevent them from qualifying for coverage or significantly raise their premiums.  If you have a family history of illness at a young age, or you are losing sleep because you’re worried about getting sick and not being able to afford care, then buy LTC when you can afford it.  The peace of mind is worth more than any cash you’ll save on premiums.  Just don’t buy LTC at a young age because you think you’ll save money by doing it.

The best way to buy long-term care insurance is to go to an independent insurance broker.  They will shop among several different insurance companies to find you the best price based on your particular location, situation, age, health, etc.  Long-term care is an important decision, so make sure you get a professional on your side.  Also, talk to your CPA so that you can make the best possible decision when it comes to planning for extended medical care.

This information, developed by an independent third party, has been obtained from sources considered to be reliable, but Anthony J. Perrotta, CPA, MST does not guarantee that the foregoing material is accurate or complete.  This information is not a complete summary or statement of all available data necessary for making a decision and does not constitute a recommendation.