November is National Long-Term Care Month and a great time to start to make a plan for this increasingly likely and costly expense. An increasing number of people are expected to reach an age where they are likely to need some type of assistance. Many "Baby boomers" are now reaching retirement age. In fact, approximately 10,000 baby boomers turn 65 every day, a trend which is expected to continue until 2030. That works out to about one person every ten seconds. How fast is that? As of 2020, 17% of the population was age 65 or older.1 The U.S. Department of Health and Human Services reports that at least 70% of people turning 65 are expected to need long-term care services at some point in their lives.2 While it’s difficult to predict what type of care any one person might need or how long they will need it, statistics reveal that the average person needing long-term care will need it for about three years. Women are averaging longer, at 3.7 years to men’s 2.2 years. And 20% of us will need care for more than five years.
Since so many people over age 65 are expected to eventually need some level of long-term care, we want to take this opportunity to provide a better understanding of long-term care, the associated costs, and the options available for long-term care planning.
What is Long-Term Care?
Long-term care includes a broad spectrum of care. This includes skilled nursing care, rehabilitation, assisted living facilities, respite care, and home health care (including meals, budgeting, house cleaning, medication management, and transportation).
How Much Does Long-Term Care Cost?
Like many other costs, long-term care costs vary by state and region.
Long-term care is expensive, and prices are increasing dramatically. The national average for assisted living centers—single occupancy—is $54,000 a year. The average cost of a skilled care facility—single occupancy in a nursing home—is much higher, at $108,405 a year. The cost for care at home averages $24/hour nationally. If care is needed eight hours per day, that translates to $70,000 per year for home care.3
As stated earlier, the interest in need for long-term care is increasing and will continue to do so. Interest in home care careers on Indeed.com has gone down 15%, while the demand for home care providers has increased 33%.4
What Are Your Choices?
There are many, however you have two primary choices: self insure or purchase long-term care insurance.
Involves depending on personal savings and investments to fund any long-term care needs. This strategy allows for more flexibility but is a potential expense for which you probably need to prepare. Many people end up on this path by default by simply not making any plans for LTC at all. As with any other form of insurance, self-insuring can have detrimental consequences.
Long-Term Care Insurance:
Your other choice is to transfer the financial risk of long-term care to an insurance company through long-term care insurance. A long-term care policy can cover all levels of care, from skilled care to custodial care to in-home assistance. Many find it to be an appropriate way to protect themselves and their loved ones. Long-term care insurance steps in if you develop a health condition that requires you to receive care and supervision. It is surprisingly affordable, especially for those who are younger and healthy. And benefits are typically received tax-free.
Choosing a Long-Term Care Policy
When choosing a long-term care policy, what do you need to bear in mind?
- Make sure you understand the limitations and features of the policy you’re considering. In most cases, policyholders cannot collect benefits until their disability reaches certain levels. And most policies specify how much they will pay for each day of care and for how long.
- Look at the type of care covered - Long-term care policies can cover different levels of care. You need to understand exactly what is covered (and what is not).
- Look at the total benefit - You want a policy that will cover you when you need it most, but you don’t want to pay for coverage you’re unlikely to need.
- Look at the waiting period before benefits are scheduled to begin.
- Make sure the policy is renewable.
- Consider inflation protection - As discussed, the cost of healthcare has been rising rapidly. A policy that falls behind rising healthcare costs will need to be supplemented with personal savings.
- Consider a policy with waiver of premium. This means your premiums are discontinued once you start drawing benefits.
Get Covered by Insurance
Long-term care insurance also can be fairly complex. Policies offer a wide range of benefits for which they charge a wide range of premiums. It’s critical to take a close look before committing to a policy or to work with a professional who understands your needs and financial situation.
A long-term care insurance policy can protect your assets. You won’t need to dip into your retirement funds to cover the cost of care. And under certain conditions, your premium may be partially or completely deductible. In the event of a long-term illness, it will enable you to preserve your independence and maintain your standard of living. You can preserve your financial flexibility and ability to make choices about your future. Finally, you can keep from becoming a burden to your family.
You need to be sure you are comfortable with the cost of premiums. These can be expensive and hinder your ability to save or pay equally important expenses. You would also not want to let the policy lapse because the premiums push your budget too far after having paid the premiums for years.
2. ACL.gov, 2022
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.