What To Consider About Long-Term Care

Long-term care and retirement planning work together to ensure that when you secure your retirement, you’ve also accounted for the possibility of landing in a long-term care situation. Many people know that they need to think about it, but they push the concept aside because it’s expensive.

A few of the questions clients come to us with are:

Should you self-insure?
What type of insurance should you get?

However, before we dive into these questions and more, you also need to consider that a very high percentage of couples, around 80%, will have one who will go into a long-term care situation.

The individuals who do enter some form of long-term care may not need extensive care or stay in a care situation for an extended period. On average, a person will spend 2 to 2 and a half years in long-term care.

Transferring Risk with Insurance

Long-term care is expensive. However, you need to determine what may happen and the risks of having insurance versus not having insurance in place. Once we have an idea of what the costs of long-term care will be, then it’s time to evaluate if:

Long-term care insurance is the best way to mitigate risks
You have more than enough in retirement funds to pay for care out of pocket

Understanding some of the basic numbers is an excellent way to gauge the risk of long-term care and what these actual risks mean to your future finances.

Nursing Home Care and Assisted Living

Every year, we’re provided with basic numbers on how much nursing homes and assisted living facilities will cost you. We receive average monthly costs by state, but the national average monthly costs in 2021 are:

$8,517 for nursing home care
$4,051 for assisted living

Of course, these are averages, so the cost may be higher or lower in your area. For example, we’re in North Carolina, and the average monthly costs for care in our state in 2021 are:

$8,060 for nursing home care
$3,800 for assisted living

If you live in a state like California, you can expect nursing home care to cost $11,000 and assisted living to cost $5,000.

In all cases, the costs for care are very high.

Additionally, due to rising inflation, a 60-year-old can expect these care costs to double in 20 years. So, if you hit 80 in 20 years from now, you can expect the national average monthly cost of care to be $16,000 – $17,000 per month.

Inflation rises about 4% per year, so it’s easy to see why long-term care and retirement planning must be considered together.

If you must stay in one of these facilities for four years, you’re looking at spending $830,000 on the low end for care.

What are Your Options to Afford $830,000 in Care Costs?

Most people we talk to don’t have $830,000 sitting around waiting for their potential long-term care. However, you do have a few options here:

Self-Insure

If you self-insure, what this really means is that you have enough money sitting around at this point in retirement that you can pay for your long-term care costs. You might be leaving less to your family by self-insuring, but your nursing home or assisted living costs will be funded by you.

Self-funding offers many options, such as:

Take out $1 million in life insurance so that when you do pass away, your self-funding doesn’t take away from the inheritance you leave behind.
Take out traditional, long-term care insurance.

If you want to secure your retirement and don’t want to self-fund your care costs, you can take out long-term care insurance. However, many people have concerns about this type of insurance because you’re paying for something you may never use.

Additionally, and we’re seeing this a lot in recent years, premiums are skyrocketing.

Some clients of ours have had their premiums double in a year.

Hybrid policies do exist, which may be something to consider if you’re planning your retirement. A few of the hybrid policies that we’re talking about are:

Annuity / Long-term Care. Place $100,000 into the annuity, and $300,000 goes into a long-term care policy. In this scenario, the money in the annuity will gain some interest, and if you die without going into care, that money will go to your beneficiaries. You can also take money out of the annuity if you need it without any penalties.
Life Insurance Hybrid. A hybrid life insurance policy often has additional features that are of interest to people. For example, you can put a lump sum of money into the account with 100% liquidity and an interest rate of 2% to 4%. The long-term care benefit comes out of the potential life insurance money. If you die without touching this money, your heirs will receive a multiplier of what you put into the policy. Premium options also exist to fund the policy. In this scenario, you’ll either leave money behind in the life insurance or through long-term care benefits.

We know that this is a lot to digest and understand in one sitting. When we work with clients one-on-one, we put these figures into the life insurance analyzer to have a clearer picture of self-funding and available insurance options.

Facts and figures give direction for people who are planning their retirement.

If you have a plan in place, we run the numbers to see what your retirement looks like at 70, 80, 90 and beyond. Then, using what-if scenarios, we can show you what retirement looks like if you use long-term care benefits, or you stay healthy until the day that you die.

Using the right approach, we can see the possibilities of self-insuring and what your heirs will have left when you die.

We encourage you to run figures, sit down with a certified financial planner and even schedule a 15-minute phone conversation with us.

Click here to schedule a free, 15-minute consultation with us.

Which long-term care insurance plan is right for you?

If you want to protect against the financial strain of future healthcare challenges, you might be considering buying a long-term care insurance plan.

There are many different types of long-term care insurance policies. They vary from how much your premium is, to the benefit they provide, so it’s important to understand which plan best suits your financial situation.

You can watch the video on this topic at the top of this post, to listen to the podcast episode, hit play below, or read on for more…

In this post, we share a high-level overview of traditional long-term care insurance, the differences between the traditional and hybrid models, and how you can adjust the options to fit your needs.

What is long-term care?

Long-term care is when you need continuing assistance in your daily life. This includes help with getting around, bathing, and other requirements within your home or assisted living facility. It also covers full-time medical care, such as a nursing home.

If you’re paying for long-term care insurance, both traditional and hybrid models have the same qualifier. A doctor would need to verify that you need help with two out of the six Activities of Daily Living for your insurance policy to start paying out. The six activities are bathing, dressing, eating, transferring, toileting, and continence.

Regular health insurance and Medicare don’t cover long-term care, so insurance could be a good idea if you want to protect your assets.

Buying long-term care insurance

Insurance for long-term care is similar to any other insurance. It’s a personal decision to transfer risk from yourself to an insurance company so that they can cover any unexpected costs.

Think about your car insurance, home insurance, or life insurance. You buy it to protect yourself in case something happens – but you may never use it. Long-term care insurance works in the same way.

There are two different types of long-term care insurance plans: traditional and hybrid. They both transfer risk from yourself to an insurance company and have the same qualifiers but have very different costs and benefits.

Understanding traditional long-term care insurance

Traditional long-term care insurance is a standalone policy, and it includes customizable options to better suit your needs.

Like any other insurance, you can pay monthly or annually to keep your insurance plan in force (active). You’ll also have to make decisions on the following items to ensure that your long-term care plan is right for you.

1. Your benefit

If you need long-term care, you can decide whether to take your benefit on a monthly or daily basis. Typically, your benefit can range from around $3,000 to $12,000 a month. Depending on how much benefit you want, your premium will change. If you want less benefit, your premium will be lower, and it will be higher if you want more.

2. Your benefit period

Your benefit period is how long your insurance will cover your long-term care needs. You can choose to have your policy cover your bills for a set number of years or cover you for the rest of your life.

3. Your inflation rate

It’s vital to keep up with the rising cost of care, so inflation is crucial to bear in mind when choosing a long-term care insurance policy. Many traditional policies have inflation protection built-in, and you can choose from a 3, 4, or 5% compound inflation rate.

If you qualify for a policy that covers $3,000 a month, for example, but you don’t need long-term care for another 10, 20, or 30 years, your policy may no longer cover your needs without inflation protection.

However, if you have inflation protection at a 5% compound rate and need long-term care next year, the insurance company will cover around $3,150, versus the original $3,000 you signed up for.

4. Your waiting period

If you need long-term care and have been approved to receive your insurance money, you’ll need to cover your expenses for a certain period. This is called the ‘waiting period’ and is typically 30, 60, or 90 days.

This is very similar to the deductible on your car insurance. For example, you may have to pay the first $500 for any damages to your car, and then your car insurance will pay for anything above that. The waiting period is when you have to use your own assets to cover a set amount of time before your insurance company will pay.

It’s important to consider how much risk you want to cover, as costs can mount quickly in your waiting period.

The pros and cons of a traditional long-term care insurance policy

One of the main positives of a traditional long-term care insurance policy is that you can manipulate each of these four factors to build the policy you want. However, they all affect your premium.

But a drawback to the traditional plan is that there is no cash value. Like car insurance, you pay to stay in force, but you don’t build up any cash reserves. So, if you start your policy in your early 50s and never need long-term care, you could pay thousands of dollars for peace of mind alone.

Some insurance companies will allow you to pay part of the premiums upfront, but the majority are paid on an annual basis and continue for as long as you’re using the policy. Once you’ve been approved for a policy, companies can’t reject or turn-off your insurance, so long as you continue to pay your premiums.

However, premiums can rise. In the past, they’ve risen every 3-5 years, and this may eventually put a strain on your cash flow. If this happens, and you want to adjust your premium, you can reduce your service based on the four factors above. Otherwise, you can cancel your policy and cover any long-term care costs that may arise using your own assets.

Understanding hybrid long-term care insurance

Hybrid long-term care insurance is designed for those who feel unsure about paying for insurance premiums when they may never need long-term care. These policies allow you access to your money and provide other benefits alongside covering long-term care.

In this post, we’ll detail two of the hybrid long-term care insurance models.

Long-term care annuity hybrid

The long-term care annuity hybrid combines an annuity and long-term care benefit. With this hybrid, your cash grows in an annuity with the added benefit of long-term care insurance. You also have an interest rate, and you can access those funds whenever you need to.

Let’s use an example. If you put $100,000 into your long-term care annuity hybrid, that $100,000 is still your money and accessible to you. You can earn interest on this money and grow your cash as if it’s in a regular annuity.

Depending on your age and your situation, the long-term care side will determine how much of your annuity can be used for long-term care. For example, you might be able to use three times the amount you put into the annuity. In this example, that’s $300,000 of long-term care benefit.

If you don’t need long-term care, then your $100,000 will continue to grow through the interest rate. You can also add it to your estate plan and distribute it to your beneficiaries at the end of your life.

With the annuity hybrid, you won’t have to worry about rate increases on long-term care insurance, and your money always stays accessible to you.

Triple hybrid – long-term care, cash value, and life insurance

If you’re unsure about what cover you might need in the future but want to keep your cash flow options open, then a triple hybrid insurance policy provides comprehensive cover and has a cash value.

The triple hybrid is similar to the long-term care annuity hybrid but offers life insurance as an extra.

Let’s use another example. If you put $100,000 into a triple hybrid insurance plan, you could have:

$300,000 for long-term care
$250,000 instantly of death benefit which can go to your heirs tax-free
Cash value close to $100,000, accessible to you

An advantage of both hybrid policies is that your beneficiaries can receive their benefits if you don’t need long-term care. Also, you won’t need to worry about rate increases as insurance premiums on hybrid policies are fixed.

Hybrid long-term care insurance is often favored over the traditional plan, but there’s lots to think about before deciding which plan is right for you. You may opt not to buy an insurance plan at all and instead finance any long-term care using your own assets.

If you want to talk to an expert about which long-term care insurance plan is right for you, our team can help. Book a complimentary 15-minute call with us, and we can explore what insurance solutions suit your unique situation and answer your questions about long-term care.