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Long-term care can be an emotionally charged topic. After all, no one wants to think about themselves or their loved ones being incapable of living on their own. But if you want to make a smart financial decision and protect your nest egg, long-term care insurance is a must.
Take Joe and Susie, for example. They weren’t always smart with money, but they worked hard and built up a nest egg of $300,000.
When Joe was 67 years old, he developed Alzheimer’s disease. At first, it wasn’t too bad. Susie used some of their nest egg to hire a homecare specialist to help with Joe a few hours every day. But as his condition worsened, Joe had to go into a nursing home.
Sadly, after five years in the home, Joe passed away. Susie, now 72, is healthy as can be for her age, but she has to work full time because her husband’s stay in the nursing home devoured most of their nest egg.
Joe and Susie’s story is not unique; it happens to many people every year . However, with long-term care insurance in place, you can keep it from happening to you. Finding an independent insurance broker who will shop several different long-term care companies and get you quotes can save you thousands of dollars and loads of unnecessary worries.
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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.
The Alzheimer’s Association estimated end-of-life care costs in 2016 were between $217,820 and $341,651. Simply put, long-term care is expensive.
What Does Long-Term Care Insurance Cover?
- Nursing home care
- Assisted living facilities
- Adult day care services
- In-home care
- Home modification
- Care coordination
Not all policies are the same, so talk to your agent to find the best fit for your needs.
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?(2) 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)
Side note: It’s common for people to try to cheat the system by moving assets out of their parent’s name to get the government to pay for LTC. That is considered fraud—a federal crime—and the government will prosecute you! The government is already having trouble paying for those on Medicaid. Do you really want to count on the government to pay for your long-term care? No way!
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.
Want to make sure your family is covered no matter what happens? Check on your coverage before it becomes an emergency. Take our 5-minute coverage checkup to make sure you have what you need.
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.
Related: The Truth About Life Insurance
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When to Buy Long-Term Care Insurance
Dave suggests waiting until age 60 to buy long-term care insurance because the likelihood of you filing a claim before that age is slim. Statistically, 89% of LTC claims are filed for people over age 70.(6)
You may assume that you’ll pay less if you buy your policy at age 50 and lock in a lower monthly premium instead of waiting until age 60 as Dave recommends. But Dave will never tell you to buy something based on how much the monthly payment is. That’s what broke people do, right?
50 Years Old vs 60 Years Old: Does When You Buy Matter?
While it may seem cheaper to buy LTC at age 50, the numbers tell a different story:
An estimated LTC premium for a healthy 50-year-old man is $1,725 per year. If the policy remains in effect until this person is 95, he can spend approximately $77,625 in LTC premiums. For a healthy 60-year-old man, an estimated premium is $2,170. If he keeps the policy until he’s 95, it can cost him $75,320 overall.(7)
You can already see how buying at age 60 is a slightly better deal. But what would happen if, instead of buying LTC at age 50, you invest that $1,725 each year until age 60? You could have over $30,000! If you keep that money invested until age 95 and never add anything to it, you could potentially have over $850,000! That’s not too shabby!
Related: How to Quadruple Your Retirement Savings
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. As you can see above, that’s just not true.
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.
Dave’s long-term care insurance ELPs are experts in the industry and can answer all your questions. Your ELP will help you make the right decision for you and your budget. Contact an ELP today.