For most of us, a long, healthy life is at the top of our wish list. We want that for you and for ourselves, and we do everything in our power to achieve that. But what is the probability that at some point, you will need help taking care of yourself later in life? As the cost of long-term health care continues to grow, it’s important to be financially prepared for a chronic medical condition that will require services not covered by your health insurance.
It’s generally not a topic people enjoy discussing, but it’s important to know the statistics. For example, 70% of individuals turning 65 will need some type of long-term care service in their lifetime.1 and the median daily rate (up to eight hours) for adult day care facilities in the U.S. is $85 in 2024.2
There are different ways to protect yourself from catastrophic long-term care expenses. Understanding your options will help you choose the best approach for you and your family.
- Medicaid – Government benefits like Medicaid can cover long-term health care expenses, however they are designed for low-income individuals and families and your eligibility, which varies from state to state, will depend on your income and assets.
- Medicare – Medicare is not considered a long-term care policy. It generally does not cover custodial care and while it does cover the care that you receive in a skilled nursing facility, if your stay is longer than 100 days, you could be looking at substantial expenses.
- Personal Savings – Always an option, but is it worth the risk? Even high-net-worth individuals may feel better transferring that risk to avoid the expenses associated with selling assets from their portfolios to cover long-term care costs. When you consider that the median annual nursing-home cost (private room) this year is $120,304,3 you can understand how not being insured could deplete your savings, impact your legacy plan, and leave your spouse with little or nothing to live on during retirement.
On the other hand, Long-term Care Insurance (LTCI) can protect your assets and provide funds to pay for your care. LTCI options include:
- Traditional Long-term Care Insurance – A basic, standalone policy designed to pay for long-term care services. Benefits are paid, after a waiting period from 30-90 days, once it is determined that the insured can no longer perform two of the six Activities of Daily Living (ADL) (bathing, dressing, toileting, transferring (moving to and from a bed or a chair), eating, and continence). These plans also offer the most tax benefits for individuals, those self-employed and business owners if they itemize deductions.
- Asset-based Hybrids – A good fit for individuals who have a significant amount of money saved or invested, or may not qualify for a traditional LTC policy, is a Life Insurance policy with LTC options. This type of coverage provides either a death benefit to the insured’s beneficiaries or the option to use the funds should the insured need LTC before his/her death. One of the best features of a hybrid is that the amount available for LTC costs can exceed the death benefit amount. If the funds are not used during your lifetime, your heirs receive the full payout. Some insurers provide additional flexibility by offering a cash benefit for LTC care. This means they will pay you the full benefit amount in cash and you can use it to pay anyone to provide care.
Whichever option you choose, talking to an experienced financial advisor and including long-term care funding as part of your retirement plan will go a long way in protecting what you’ve worked a lifetime to achieve.
1 – Article -100 Must-Know Statistics About Long-Term Care: 2023 Edition, Christine Benz 3/29/2023
2,3 - Genworth. (2024). Cost of Care Survey