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Exploring Long-Term Care Insurance

Terry Bobo

Director of Insurance Solutions

Garrett Cauley

Insurance Advisor


Long-term care (LTC) services such as in-home nursing or a room in an assisted living center can cost hundreds of thousands of dollars—putting your dreams for retirement or other goals in jeopardy. LTC insurance coverage can help safeguard both your physical and financial wellness. November was National LTC Awareness Month—a timely reminder to talk with your insurance agent or wealth management advisor about adding this type of coverage.

Long-Term Care: Know Your Options

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, an estimated 70% of people who reach age 65 will require long-term care (LTC) at some point in their lifetime.1

Arranging LTC 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 $4,700 a month and the average cost for a private room in a nursing home is nearly $110,000 a year.2

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


How does LTC insurance work?

While the earliest examples of this coverage date back more than half a century, LTC insurance in its current form took shape during the 1990s. A LTC 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 LTC services in a residential facility, a person typically must have exhausted nearly all other financial assets and have a very low income in order to qualify.

A private LTC insurance policy can be structured to repay all, or part of, the costs associated with daily living support—whether at home or in a residential facility—over a specific time span. For example, you might select coverage of up to $250 per day for up to four years. This establishes a pool of money that you and your spouse or children can tap into as needed.

The premium that you pay is based on your health, age, and gender. If your actual care expenses should happen to fall below the established daily limit, many LTC policies will lengthen the time span of reimbursement accordingly. You may also be able to transfer unused benefits to your spouse if you have purchased coverage together.


Advantages of LTC 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 the LTC 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.

Properly structured LTC insurance also:

  • Brings valuable peace of mind 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, LTC 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 LTC policy could be one of the most thoughtful gestures you can make toward your loved ones.


What to consider when exploring LTC insurance

Although a LTC 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 LTC insurance covers. If this scenario feels too disheartening, you could purchase a life insurance policy that provides the option of receiving LTC benefits rather than part or all of a standard after-death payout. 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 LTC benefit would also be paid income tax-free.

Other considerations regarding LTC 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, an LTC policy may be an important tool to help preserve assets from being used for health care. Or, you may conclude that you will have enough financial assets to cover LTC expenses on your own and still achieve your other goals.
  • Whether you will be able to afford the cost of this policy throughout your lifetime. While traditional LTC policies have a reputation for premium increases, many Hybrid Policies (Life & LTC) 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. LTC expenses vary widely by state and by setting, such as care provided at home versus in a skilled nursing facility. You can compare current as well as projected future costs using this online calculator.
  • Other care-related expenses. For example, prescription drugs typically fall outside of LTC 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. Your wealth management partner should also be able to help you:

  • Spend less of your own time and energy researching insurance options and keeping track of policy details.
  • Navigate the tax implications of LTC insurance and other types of coverage.
  • Achieve your desired balance between LTC benefits and premium costs.
  • Review and update your coverage regularly to keep pace with your evolving needs.

Whether you view long-term care as a distant prospect or an imminent need in your lifetime, discussing LTC insurance with your financial advisor can help put your options in a clearer light.

If you’re interested in learning more about LTC, reach out to your advisor to set up an appointment. You can also learn more on our Insurance Solutions page.

Additional resources:

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