The rapidly increasing costs of assisted living, or long-term care, and the recent legislative action in Washington State have many people looking at their long-term care (LTC) coverage options. It is currently estimated that 7 out of 10 people turning 65 will need some form of LTC in their lifetime, and 2 out of 10 will need care for more than 5 years.a
What you will learn:
- How much does long-term care cost?
- Who pays these costs?
- What are the insurance options?
- Tips for shopping
How much does long-term care cost?
The cost of long-term care can be staggering and can have a dramatic impact on a retirement plan. In 2020, the average cost of a private nursing home room was $105,850 per year. This number is reduced only slightly to $93,075 for a semi-private room. Assisted living facilities cost an estimated $51,600 per year. In-home care for 40 hours per week is estimated to cost over $53,768 per year.b
Who pays these costs?
Unless you qualify for Medicaid, you will be responsible for 100% of the cost of care. Medicare DOES NOT pay for long-term care.c You will pay 100% for non-covered Medicare services. Since Medicaid is a program to assist those with limited resources, qualification for Medicaid is subject to both income and asset limits. To qualify for Medicaid, you may be required to spend down most if not all your retirement assets before you will be eligible.
What are the insurance options?
There are 4 main types of insurance to help offset the cost of LTC insurance coverage.
- Linked Benefit Life Hybrid
- Accelerated Benefit Life
- Linked Benefit Annuity
- Traditional LTC
Linked Benefit Life Hybrid
This policy intends to leverage an existing asset to create a pool of long-term benefits. There are multiple ways to fund these types of policies. The policy pays a predetermined benefit, and premiums are usually guaranteed. These policies often offer a return-of-premium feature. These policies are usually best for those with assets that can be transferred to the policy (with the intent to provide LTC protection).
Accelerated Benefit Life
This is a life insurance policy with an LTC rider. The primary focus of these policies is to provide life insurance protection, with the added benefit of covering LTC costs if needed. The premiums are based on the face amount of the life insurance policy. These policies are a great way to set a specific premium for the life of the policy. The downsides are that these policies do not usually come with inflation protection, and the total benefit of the LTC coverage will be limited by the face amount of the policy.
Linked Benefit Annuity
These are annuities that offer a multiplied LTC benefit. If long-term care is not needed, the annuity benefits remain. These products often have higher fees and limited crediting options that may limit the annuity’s growth. As pro’s for these products, they offer guaranteed premiums, minimal underwriting, and lifetime benefit options are available. The con’s of these products are the low crediting rates and limited death benefit. These products are best for those that comfortable with limited long-term care benefits and are comfortable with higher premiums.
This is a standalone policy that is designed to provide an LTC benefit. These policies can usually be tailored to meet specific needs with moderate flexibility in plan design. Some policies allow spouses to share benefits. These policies also usually have a cost of living adjustment. These benefits with these policies are usually, “use it or lose it,” and can only be used for long-term care. These policies do not have fixed premiums, so they can be subject to premium increases over time.
Tips for Shopping for Coverage
When shopping for LTC coverage, it is very important to talk with a professional first. You will want to talk with someone that has access to multiple carriers and options. Some professionals will do some limited pre-underwriting to determine which carriers may be a good fit. This can save quite a bit of time and improve your chances of approval on your first application.
a) 2020 U.S. Department of Health and Human Services (https://acl.gov/ltc/basic-needs/how-much-care-will-you-need). Site accessed 06/22/2021
b) 2020 Cost of Care Survey – Genworth Financial Inc (https://www.genworth.com/aging-and-you/finances/cost-of-care.html). Site accessed 6/22/2021
c) 2020 Medicare.gov – (https://www.medicare.gov/coverage/long-term-care). Site accessed 6/22/2021