Long term care (LTC) poses one of the greatest financial risks to retirees. The potential cost for this care is so high that it could drain a nest egg. While protection exists in the form of LTC insurance, very few take advantage.
In fact, researchers are baffled by the low adoption rate of LTC insurance among retirees. Statistically, 52% of people turning 65 today will need LTC at some point in the future, and 20% will need it for longer than five years. As people are living longer, these numbers should continue to rise.
What exactly is long term care?
Surprisingly, most LTC is not medical care. LTC benefits are triggered when you need help with basic, everyday tasks, called activities of daily living (ADL’s). The six ADL’s are:
- Eating
- Bathing
- Getting dressed
- Going to the bathroom
- Transferring from one place to another
- Continence
Generally, LTC insurance policies require that you are unable to perform at least two ADL’s to receive benefits. When people think of LTC, most think of a nursing home. However, most care is provided in the comfort of your residence.
How much do LTC expenses cost?
On average, the annual cost varies by level of care required:
- $102,200 – Nursing Home Facility (private room)
- $52,624 – Home Health Aide
- $48,612 – Assisted Living Facility
While you might be fine paying for one or two years of LTC, insurance should be considered as a way to hedge your risk against a high amount of financial loss if several years of care are needed. In fact, one insurance company has paid an LTC claim of $2,600,000 to one person. This is a risk you cannot ignore.
Who pays for long term care?
In the US, only 6% of LTC costs are being covered by actual LTC insurance. Many assume that Medicare will pay for LTC. Medicare does not pay for custodial care (i.e. assistance with ADLs). It will only pay for short-stay skilled nursing care following an inpatient stay at a hospital.
Medicaid is not an ideal plan for funding future care either. To qualify for Medicaid, you must pass income and asset requirements, which means spending down nearly all of your own money first.
What age should I get LTC insurance?
The timing of when to get LTC insurance is tricky. Consider these as you think about when to apply:
- Health: LTC is medically underwritten, meaning any number of health issues can cause your application to be denied. In fact, 44% of applicants in their 70’s are denied coverage, and 30% of people in their 60’s are denied. For applicants in their 50’s, only 22% are declined.
- Older age = higher premiums: besides your health, the premium you pay is based on your age. The longer you wait, the higher your cost.
It’s wise to consider LTC insurance starting at age 55.
This is the “sweet spot” when you are still (most likely) in good health and able to consider your options for securing coverage. The inflation rider on your policy will go to work, giving you many years for your LTC benefit to grow. Some people recommend waiting until you are 60. While this might work out, you run the risk of becoming uninsurable and your premiums will be higher. It’s wise to at least consider your options and start planning in your mid-50’s.
Why don’t people buy LTC insurance?
Ask anyone in or near retirement and they’ll focus on its high monthly premium. As explained by Lemonade, people put off buying insurance for something that may never happen to them and believe they are saving money by doing so.
What are my options?
The insurance industry has developed innovative ways to get LTC insurance in a different product. Besides a traditional LTC policy, consider:
- Life insurance/LTC combination
- Annuity/LTC combination
Is now the time for LTC planning?
If you are in your 50’s, now’s the time to start. If you’re in your 60’s or 70’s and don’t have a plan for LTC, we can help figure out the best way to get the protection you need.
Remember: long term care is expensive. Failing to plan affects more than you—it affects your family.
We are here to help. Schedule a time to talk with one of our wise advisors today.
