Preparing for the Unthinkable: Understanding Long-Term Care Insurance

Garrett Cauley

Insurance Advisor


Explore the intricacies of long-term care insurance, including its role in financial planning, coverage options, and key considerations, providing essential guidance to help achieve financial assurance in retirement.

Understanding Long-Term Care Insurance

It’s not easy to think about someday needing around-the-clock assistance with basic activities of daily living due to a debilitating injury or illness. However, the Administration on Aging estimates that at least 70% of people who are 65 will require long-term care at some point in their lifetime.

Arranging long-term care services for yourself or a family member can quickly grow financially overwhelming. For example, the cost of a full-time home health aide in the United States averages more than more than $5,248 a month and the average cost for a private room in a nursing home is nearly $120,304 a year.1

With so much potentially at stake as we age, the benefits of considering long-term care insurance as a component of your overall financial plan are hard to ignore.

How does long-term care insurance work?

While the earliest examples of this coverage date back more than half a century, long term care insurance in its current form took shape during the 1990s. A long-term care policy is designed to provide benefits to the policy holder for expenses associated with caring for someone who cannot independently perform routine activities such as getting out of bed, dressing, bathing, eating, and using the restroom.

Such care typically falls outside the parameters of standard health insurance coverage. Although the federal and state-run Medicaid program does pay for certain inpatient long-term care services in a residential facility, a person typically must have exhausted nearly all other financial assets and have a very low income to qualify.

A private long-term care insurance policy can be structured to pay for all, or part of, the costs associated with daily living support — whether at home or in a residential facility — over a specific time span. There are also a variety of forms of coverage, such as life insurance with long-term care benefits added known as hybrid policies. Policies can provide benefits for other areas related to care needs as well such as home modifications or care provider training.

The premium that you pay is based on your health, age, and gender. Each state also regulates which options are available for consumers where they are currently living. Because of the wide variety of options, benefit structures, and potential premiums needed, it’s important to be proactive to secure coverage that is bespoke to your family’s goals.

Advantages of long-term care coverage

In contrast to Medicaid requirements, you or your family members don’t have to deplete other savings or liquidate the other assets in your estate before your long-term care insurance benefits kick in. So, this type of coverage can help ensure your long-range financial goals — retirement, funding your children’s or grandchildren’s college education, donating to philanthropic causes, and passing along your estate — come to fruition. Perhaps the biggest advantage in many situations is that these policies pay benefits that are income tax-free when structured appropriately. Additionally, several states offer Partnership Programs, which allow individuals who have secured benefits for long-term care privately to exclude a portion of assets from Medicaid qualification.

Properly structured long-term care insurance also:

  • Brings valuable assurance from knowing you will receive care in the event of a sudden or progressive, debilitating illness.
  • Protects your savings and other assets in your estate — or those of your loved ones — from being depleted to pay for your care as you age.
  • Helps counteract rising healthcare costs over the course of your lifetime.

Moreover, long-term care insurance helps relieve your family members of the emotional and physical burdens involved in providing care. As much as we may love our spouse, parents, or siblings, how many of us would truly feel equipped to bathe and dress them full-time? From that perspective, purchasing a long-term care policy could be one of the most thoughtful gestures you can make toward your loved ones.

What to consider when exploring long-term care insurance

Although a long-term care policy can yield compelling benefits, they need to be weighed against your ongoing cost for coverage. As a general rule, your premium will be dramatically lower if you buy coverage at age 40 versus waiting until you are 60. However, the number of years that you’re paying for coverage is almost certain to be longer too.

There’s also the possibility that you will never actually require the services that long-term care insurance covers. If this scenario feels too disheartening, you could purchase a life insurance policy that provides the option of receiving long-term care benefits if needed. These are referred to as Hybrid Policies and are designed to remove the concern around paying premiums for a pool of money we may never actually need. With this type of policy either you, your spouse, or your estate will receive the pool without worrying about not using the policy and just like the long-term care benefit would also be paid income tax-free.

Other considerations regarding long-term care coverage include:

  • The value of your estate that you’re seeking to protect. If it’s likely to total less than $3 million at retirement, a long-term care policy may be an important tool to help preserve assets from being used for health care.  In some instances, after discussing with your advisor, you may find that your estate has the resources to allow you to self-insure against this potential event, while also still being able to accomplish your financial objectives.
  • Whether you will be able to afford the cost of this policy throughout your lifetime. While traditional long-term care policies have a reputation for premium increases, many Hybrid Policies (Life and long-term care) have been designed to be significantly more stable to prevent the need for rate increases.
  • Where you plan to retire, and in what type of environment you would want to receive ongoing care. Long-term care expenses vary widely by state and by setting, such as care provided at home versus in a skilled nursing facility.
  • Other care-related expenses. For example, prescription drugs typically fall outside of long-term care coverage.

Taking a holistic view of insurance and wealth management

The intrinsic value of insurance lies in helping you anticipate and manage financial risks that you would otherwise have to bear on your own. That’s one reason we at Mercer Advisors believe insurance should be a fundamental topic in our discussions with every client about their wealth strategy.

By working with an advisor who’s not only well-versed in your overall financial plan but also has specialized insurance resources as part of your team, you’re less likely to miss cost-saving opportunities or crucial gaps in coverage.

Whether you view long-term care as a distant prospect or an imminent need in your lifetime, discussing insurance with your financial advisor can help put your options in a clearer light. If you’re interested in learning more about long-term care, reach out to your advisor. If you are not currently a client and have questions, let’s talk.


1 Senior Living

Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.

Mercer Global Advisors has a related insurance agency. Mercer Advisors Insurance Services, LLC (MAIS) is a wholly owned subsidiary of Mercer Advisors Inc. Employees of Mercer Global Advisors serve as officers of MAIS. More information about MAIS and our Strategic Partners may be found in our Form ADV 2A.

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