Planning for retirement in the long-term is on the to-do list for most people. However, many Americans neglect to prepare for long-term care (LTC) expenses, which can often turn out to be the most significant expense you’ll face in retirement.
Approximately 70% of adults will need long-term care eventually, according to the U.S. Department of Health and Human Services. And those who do need this type of care will require it for an average of three years.
Make no mistake: LTC costs are huge and can aggressively drain a family’s savings. Even worse, once started, they continue for an indeterminate amount of time. Aside from using family assets to pay for such care, sound planning can include the purchase of long-term care insurance and/or the addition of a high quality “accelerated death benefit” rider to a life insurance policy which can pay a portion of the death benefit early based upon certain medial events.
According to Genworth’s 2019 Cost of Care survey, LTC costs rose by 46 percent in the last 15 years. Genworth has been studying the cost of long-term care in America for the past 16 years and the glaring trend is that LTC costs are continuing to rise. This comes right at the time the aging Baby Boomer population turns retirement age.
Genworth Cost of Care 2004-2019
| Annual Cost in 2004 | Annual Cost in 2019 | |
| Private Room Nursing Home | $65,185 | $102,200 |
| Assisted Living Facility | $28,800 | $48,612 |
| At Home Healthcare Aide | $42,168 | $52,624 |
Long-term care (LTC) is defined by Wikipedia as healthcare assistance and various other services for people who are ill, disabled or otherwise physically unable to care for themselves. LTC services can be rendered by a spouse, family member or by a professional.
LTC can be a few days a week to daily care and involves the contracting of a licensed healthcare worker to service and physically manipulate a debilitated patient throughout normal daily activity.
The level of service people receive with long-term care can be very costly and there could be no option to forego the service. Funds will need to be allocated. This is where LTC insurance or a combo life insurance policy would kick in.
Nobody wants to think that someday they may require around-the-clock assistance completing everyday activities, like getting dressed, going to the bathroom, washing or eating meals. Even changing clothes can be a daunting task. Despite avoiding the thought, LTC can be a necessity for you in your lifetime. It happens and you need to be fiscally responsible and be ready.
Most public and private entities define disabled (and thus the need for long-term care) as the inability to perform two or more of six Activities of Daily Living: Eating, Bathing, Dressing, Transferring, Maintaining continence, Toileting.
Life Happens, a nonprofit organization whose mission is to inform and guide consumers on becoming financially responsible for their lives points out that LTC can put a real wrench in your retirement plan.
“With health care costs expected to continue increasing faster than inflation,” columnist Bill O. Quin, CLU, ChFC, RFC advises. “The time to plan for your future health care needs is now—before you retire.”
The average additional life expectancy for people who are 65 is “17.8 years for men and 20.4 for women,” the Life Happens column states. Medicare gaps may mean more out of pocket expenses for healthcare in the future. For that reason alone, LTC insurance is your safety net in your retirement planning.
Conditions such as dementia, stroke-caused deficiencies, or any other illness, disease, or aging. Families may be unqualified, unable or unwilling to offer such care. Long-term care insurance is the key to remedy this situation.
It happens and even if the period of not actively working is for a few weeks or months, there will be a financial loss if you are not able to subsidize the income lost if you become unable to work for an indeterminate amount of time.
Consumers are buying LTC insurance more today, than just a decade ago with seven million Americans insured, reported The National Association of Insurance Commissioners (NAIC) in a February 2020 Key Initiative topic column on LTC insurance.
LTC was first offered in the 1960s and has proven itself a viable product that lessens the stressors in having enough money after you retire. The LTC market has grown since the product’s inception on the 1960s and has grown from a few billion having coverage to a solid seven million within the last decade
“According to the U.S. Department of Health and Human Services (HHS), about 12 million of America’s senior citizens will require long-term care by 2020,” notes the NAIC column.
Insurance experts do agree that the best time to apply for LTC insurance is when a person is healthy. LTC insurance is only available to those who are in good health. Once you become chronically ill, you become uninsurable to the LTC companies.
LTC insurance is often overlooked by consumers, or put off as a non-essential buy, to buy later, notes the NAIC column. However, LTC is often something that is needed but was not expected. Insurance by design is exactly for those moments, to kick in and give you the funds you now need.
Statistics confirm that many Americans see LTC insurance as a “wait ’til later” idea. Nonetheless, you may find yourself needing this coverage unexpectedly and suddenly. Experts agree, it is wise to prepare now.
A 55-year old couple can expect to pay about $2,500 per year for LTC insurance, according to the American Association for Long-Term Care Insurance.
Drawbacks to buying a stand-along LTC policy are high cost and the prospect of paying premiums for years and then dying without needing any long-term care. As an alternative, consider sheltering assets in a new combo life insurance-LTC policy that will wither payout on the death benefit or pay before death based upon certain medial events and your need for long-term care. If you don’t access any long-term care payouts, then the death benefit is payable to your beneficiary and your wealth has been transferred.
The below chart shows actual monthly costs of a 20-year level term combo life insurance policy that also offers accelerated death benefit payouts for a healthy male. Rates for females will be less.
Male 20-Year Rates
| Age | $250,000 | $500,000 | $1,000,000 |
| 18-35 | $27 | $29 | $39 |
| 40 | $29 | $32 | $57 |
| 45 | $29 | $50 | $93 |
| 50 | $43 | $78 | $147 |
| 55 | $66 | $122 | $238 |
| 60 | $116 | $213 | $414 |
If you buy a combo policy, understand that early payouts for long-term care expenses will reduce the death benefit dollar-for-dollar or more severely according to some policies. Make certain that you understand how this works before you buy.
