Long-term care insurance can be an emotionally charged topic. It’s not exactly something you want to talk about at the dinner table. 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!
To illustrate this, take Steve and Rachel, for example. They weren’t always smart with money, but they worked hard and built up a nest egg of $300,000.
When Steve was 67 years old, he developed Alzheimer’s disease. At first, it wasn’t too bad. Rachel used some of their nest egg to hire a homecare specialist to help with Steve a few hours every day. But as his condition worsened, Steve had to go into a nursing home. Sadly, after five years in the home, Steve passed away. Rachel, 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.
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Unfortunately, Steve and Rachel’s story isn’t unique. It happens to many people every year. But with long-term care insurance in place, you can keep it from happening to you!
What Is Long-Term Care Insurance?
Long-term care insurance is basically nursing home or assisted living insurance. It pays for the long-term care (LTC) services some folks will need as they age or become ill and need help with daily tasks like getting dressed, bathing and more.
And long-term care can get expensive—really expensive. According to the Alzheimer’s Association, the estimated cost for end-of-life care in 2019 ranged between $233,000 and $367,000.1 Most health and disability insurances won’t cover long-term care, but long-term care insurance will.
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.
The Alzheimer’s Association estimated end-of-life care costs in 2019 were between $233,000 and $367,000. Simply put, long-term care is expensive.
What Does Long-Term Care Insurance Cover?
Nursing home care
Assisted living facilities
Adult day care services
Not all policies are the same, so talk to your independent insurance agent to find the best fit for your needs.
Why You Need Long-Term Care Insurance
Did you know that 14 million adults needed long-term care services in 2018?2 Purchasing long-term care insurance can give you peace of mind and protect the nest egg you worked so hard to build. You’ll know that if you become ill, you can afford the care you need and still have enough money in your nest egg 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.
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 without touching those assets. That is considered fraud—a federal crime—and the government will prosecute you! Don’t fall into that trap.
Types of Long-Term Care Insurance
Traditional Long-Term Care Insurance
Traditional long-term care insurance is a no-frills, standalone insurance policy. All it does is offer to pay for long-term care services when you need them. That’s it!
When does a traditional policy kick in? The policy is triggered when you can no longer perform two out of six activities of daily living (such as dressing, bathing, eating, or transferring to a wheelchair) or suffer from severe cognitive impairment. After a waiting period of 30–90 days, your benefits should start coming in.
OK, let’s break it down. The median cost of a semiprivate nursing home room nationwide is $90,155 per year. Assisted living runs $48,600 annually, and home health aides charge $144 per day.3 That’s expensive! 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. That way, a lengthy stay at a nursing home is less likely to drain your savings or wipe out your estate.
The average annual long-term care insurance premium for a 60-year-old couple is around $3,400 (or about $283 per month).4 As far as the payout, the typical long-term insurance policy provides a benefit of $160 per day for nursing home care for a set number of years (three is most common).5 Plus, you can add an inflation rider that increases your benefit over time, typically by 3% a year (but fair warning, that will probably cost you a little extra).
Hybrid Life and Long-Term Care Policies
Another 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.
But brace yourselves—the price tag for a hybrid policy is usually thousands of dollars more expensive than a traditional policy. That’s because you’re also buying life insurance you might not even need along with LTC coverage. And unlike traditional long-term care insurance, the premiums for hybrid policies are not tax-deductible.
Similar to whole life insurance, insurance companies invest the money in your hybrid policy. The problem is they’re not making good investments and your returns will probably barely keep pace with inflation. Those lost earnings could end up making hybrids the most expensive long-term care policy of all.
That’s why hybrid policies should generally be a last resort. The only time you might consider buying one is if you can’t qualify for a traditional long-term care insurance policy due to medical underwriting. Other than that, buy long-term care insurance and life insurance separately—don’t try to marry the two!
When to Buy Long-Term Care Insurance
OK, Dave suggests waiting until age 60 to buy long-term care insurance because the likelihood of you filing a claim before then is slim. So you’ll want to buy a long-term care policy as a 60th birthday present to yourself! Statistically, 95% 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. But Dave will never tell you to buy something based on how much the monthly payment is. That’s what broke people do, right? It’s about what you need, when you need it.
50 Years Old vs 60 Years Old: Does When You Buy Matter?
While it might 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 $1,657 per year. If the policy remains in effect until this person is 95, he can spend approximately $74,565 in LTC premiums. For a healthy 60-year-old man, an estimated premium is $1,811. If he keeps the policy until he’s 95, it can cost him $63,385 overall.7
You can already see how buying at age 60 is a better deal! But what would happen if, instead of buying LTC at age 50, you invest that $1,657 each year until age 60? You could have roughly $30,000! If you keep that money invested until age 95 and never add anything to it, you could potentially have over $1.3 million! That’s not too shabby!
Many people worry that if they wait until age 60 to buy LTC, they’ll 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.
Work With an Independent Insurance Agent
OK, what’s the best way to find long-term care insurance? Go to an independent insurance agent. They’ll shop among several different insurance companies to find you the best price based on your particular location, situation, age, health and other factors. Long-term care is an important decision, so make sure you get a professional on your side!
Dave’s long-term care insurance Endorsed Local Providers (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.