Americans are living longer, healthier lives than ever before. By 2030, the Medicare-eligible population in the United States is expected to increase to approximately 69.7 million. It is estimated that one out of every two Americans turning 65 today will need the coverage of a long-term care solution during their lifetime. A long-term care event can have both a financial and lifestyle impact on the entire family, and it is prudent to explore your options to transfer some or all the risk from your family to an insurance company.
What are the Potential Costs of Long-Term Care?*
Nursing home, private room: $105,485/year
Nursing home, semi-private room: $92,712/year
Assisted living facility: $56,700/year
Home health aide: $37,440/year
Adult day care: $18,720/year
*Monthly National Median in 2020, according to Genworth Financial.
Let’s look at popular long-term care funding options today…
Medicare pays for medically necessary acute care, such as doctor visits, prescriptions, and hospital stays. Medicare will help pay for a short stay in a skilled nursing facility if you meet all the conditions. Medicare does not pay costs for days you stay in a skilled nursing facility after day 100. Medicaid covers long-term care costs but to be eligible you need to qualify based on an income and asset test. Assets that are usually counted for eligibility include: Checking/savings accounts, stocks/bonds, CDs, real property other than primary residence, and additional motor vehicles if you have more than one. Benefits and eligibility vary from state to state.
Traditional Long-Term Care Insurance:
These are “stand-alone” long-term care insurance policies with a “use it or lose it benefit.” Typical terms include a daily benefit for care, a waiting period of about three months before benefits begin, and a maximum of three-to-five years’ worth of coverage. You usually pay an annual premium for life, although your premium payment period could be shorter. Almost all insurance companies issuing “traditional” long-term care policies have raised customers’ premiums over the years, with average increases of 50-to-60% over the past decade. While more than 100 insurers sold policies in the 1990s, today, fewer than twelve sell traditional long-term care coverage. Stand-alone long-term care insurance remains an important option. New carriers and products are replacing those old offerings and the market has unique options for every type of buyer.
Hybrid Life Insurance with Long-Term Care Benefits
A hybrid long-term care policy combines the benefits of life insurance with long-term care coverage. There are two main categories of riders: Long-Term Care Rider (sometimes called Section 7702B riders) or Chronic Illness Riders (sometimes called Section 101(g) riders). There can be a significant difference in how benefits are paid including the coverage of temporary claims.
A key feature of hybrid life is that, if you do not use your long-term care benefits, the policy will pay a life insurance death benefit to your beneficiary. In contrast to “use it or lose it,” this feature can provide important peace of mind. Also, premiums are generally fixed for life and not subject to increase. Some policies even offer a return-of-premium option.
Long-term care costs are difﬁcult to predict. Long-term care expenses are a key risk to your retirement plan, and you need to plan for them. If long-term care is needed, it will affect you and your caregivers financially, physically, and emotionally. Having a plan to address these concerns, including one that transfers risk to an insurance company, is critical to easing the burden on you, your family, and your friends. It is important to work with a qualified insurance professional who can help you explore your options.
This article is for educational purposes only, please refer to actual policy illustrations for specific values and rates depending on your age, health, and other factors.
Cory C. Grant, CA License #0B40568
Scott B. Hinkle, CA License #0B49665
David A. Jacobs, CA License #0C90752