Long-term care is a topic many of us avoid, however reality hits when we or a loved one needs care. Even in-home care is expensive and can pose a serious threat to retirement nest eggs. Long-term care insurance could be one way to mitigate this risk. Below we highlight how long-term care policies work, how much they cost, long-term care statistics, and available options.
How Long-Term Care Policies Work
Long-term care policies are insurance policies that cover expenses related to a change in lifestyle capabilities. These policies can typically cover the following expenses:
- Nursing Home Care
- Assisted Living Facilities
- Adult Day Care
- In-Home Care
- Home Modification
- Care Coordination
Many mistakenly believe Medicare covers these expenses. In some very specific situations, Medicare may pay a portion of these costs for a very limited amount of time. The number of facilities and caregivers who accept Medicare patients is dwindling as well.
The transition to assisted living typically begins when a doctor determines an individual is unable to perform, on their own, two activities of daily living which include: eating, bathing, dressing, toileting, transferring, and continence. Once that transition begins, the individual is usually required to meet what is referred to as an ‘elimination period’. The elimination period is the period of time the individual is solely responsible for his or her own costs of long-term care, usually 100 days. After that period of time, most long-term care policies begin payments.
While Medicaid does cover these costs, it is a welfare program for those who have virtually no assets. Some try to avoid this hurdle by gifting their assets to family members. The IRS has closed this loophole with a five year look-back period. If you did gift assets during this period, the IRS will disqualify you for coverage.
What is the probability you will need care?
52% of all people turning 65 will need care at some point in their life
42% of people older than 85 will need care
How much does Long-Term Care cost?
The average stay in a nursing home in SC is $158 per day or $57,670 per year. An additional $60,000 of unplanned expenses over multiple years can quickly ruin a financial plan.
Below is a brief summary of the average length of care:
| 1 Year or Less | 1 – 2 Years | 2 – 5 Years | 5 Years + |
| 48% | 19% | 21% | 13% |
What is the best time to purchase Long-term Care insurance?
The “sweet spot” for purchasing this coverage seems to be between 50 and 60 years of age. Beyond this point, many people may have health or mobility issues that could make the insurance cost prohibitive or difficult to obtain.
Long-term Care Insurance Options
Traditional Long-term Care
At its most basic form, this policy will pay a specified dollar amount per month for a specified period. Benefits begin after the elimination period is completed. An inflation rider is available on policies. This means that the benefit will increase to keep up with CPI or a specific % per year.
Pros:
• Easy to understand.
• Least expensive option
• Couples receive a discount if purchased together
Cons:
• Use it or lose it
Hybrid Long-term Care
This coverage blends permanent life insurance with a Long-term Care feature. These policies carry a death benefit that is accessible to pay for Long-term Care needs. If you do not need the coverage, your beneficiaries receive a death benefit.
Pros:• The death benefit can be used to pay final expenses
• The death benefit ensures some return for the premium paid
Cons:
• One time lump sum premium
• Opportunity cost of paying a premium rather than investing
• Expensive
Greenwood Capital is an SEC registered investment advisory firm. This material has been prepared for information purposes only, and is not intended to provide, and should not be relied on solely for tax, legal or accounting advice.
