For many, considering the need for life insurance happens around the time they have their first child. This makes sense, as having children is often the first time that people have another person depend on them financially.
A lot of new parents purchase term life insurance, which is designed to last for a specific period (20 years, 30 years, etc.), because it can be a solution to this financial dependence and is the least expensive form of life insurance. When that term is coming to an end, those parents are typically now in their 50s or 60s and often begin to think about their own needs for later in life, one of which is long-term care (LTC).
What Is Long-Term Care?
The term encompasses a range of services that individuals may need when they are unable to care for themselves. This need may result from a chronic or disabling medical condition such as an illness, disability, or cognitive impairment. Therefore, LTC needs can arise at any age due to an illness or injury, or simply due to the effects of aging.
Many Park Piedmont clients seek our guidance in making sure that they can cover their own costs of care and that the burden of these costs doesn’t fall on their children or other relatives. We’ve been working with a number of clients recently who are thinking about their LTC planning, and we thought it would be helpful to share information on this topic more broadly.
To clarify, LTC is not the same as medical care. The goal of LTC is to help people function independently in their everyday lives and manage their activities of daily living (ADLs), which include eating, using the bathroom, bathing, getting dressed, etc. Medical care, on the other hand, seeks to improve the recipient’s medical condition through treatment received in a hospital, emergency room, or other medical facility.
LTC also differs from medical care in how it is funded. The costs of medical care are typically covered by health insurance, including private insurance and government programs like Medicare. LTC, however, is generally not covered by private health insurance or Medicare.
Risk Factors for Long-Term Care
The biggest risk factors for LTC are age, gender, and medical history. As you might expect, as people age, the probability that they will require some form of LTC increases. The chances of a person in the US over 65 years old needing LTC at some point is now 70%.
Regarding gender, women have longer life expectancies on average and are therefore at greater risk for needing LTC. In the US, women account for about two thirds of all LTC insurance claims.
Lastly, having a more serious personal or family medical history typically means a higher chance of needing LTC. Examples of medical issues that most commonly require LTC include strokes, injuries as a result of a fall, dementia, Alzheimer’s, obesity, and Parkinson’s.
Types of Long-Term Care
There are many kinds of long-term care that an individual can receive, including:
- Home care, in which a nurse or other home health aide provides care in an individual’s home during the day or around the clock. In a home care setting, many people also end up relying on a spouse or other family member to serve as a caregiver, which may be a perfectly good solution but can also cause emotional and financial strain on the caregiver.
- Skilled nursing care refers to services that can only be performed by a licensed nurse, doctor, or therapist. Skilled care is usually provided in hospitals, assisted living facilities, and nursing homes.
- Custodial care is provided by non-medical professionals and usually involves help with ADLs only. Custodial care can take place in the home, assisted living facility, or nursing home.
- Adult day care provides support in a non-residential facility during the day while an individual’s primary caretaker, typically a family member, is at work.
- Hospice care addresses the needs of terminally ill patients and is a separate type of LTC.
To clarify, assisted living facilities provide a more social lifestyle for seniors who are generally active but require assistance with everyday tasks. Nursing homes, on the other hand, provide LTC and medical care for adults with serious health issues. Nursing homes usually cost more than assisted living due to the higher level of care.
Long-Term Care Costs
As life expectancies have increased, so have the costs of LTC services. (For more information on the average costs of LTC in your area, please refer to the Genworth Cost of Care Survey, which tracks the cost of long-term care services nationwide, broken down by region and care type. This website provides valuable insights into how much LTC costs today and might cost in the future, which can help you and your family understand and plan for LTC needs.)
As of 2021, the annual median cost in the US is $62k for home care, $54k for an assisted living facility, and $108k for a private room in a nursing home. The costs are, on average, much higher in large cities than in rural areas.
Because of these high costs, long-term care has become one of the most significant health care issues for older people and their families, and one of the most common catastrophic health care expenses. So, if LTC isn’t covered by health insurance, how do people typically pay for these services?
Paying for Long-Term Care
There are many methods of paying for LTC if needs arise. The primary approaches include Medicaid, self-insurance, and private LTC insurance plans.
As mentioned previously, Medicare, the federal program that provides healthcare coverage for people who are either 65 years old or have certain chronic medical conditions, provides very limited LTC coverage and should not be relied on for this type of care. Medicare is primarily designed to provide medical care but will cover up to 100 days of LTC if very specific conditions are met. Most individuals who require LTC need it for much longer than 100 days and will not meet the Medicare criteria.
Medicaid is a state and federal program that provides medical assistance to low-income individuals and their families. Medicaid covers a wide range of services, including LTC, but a person typically must have very few assets and little income to qualify. Eligibility requirements regarding income and assets vary by state.
Another funding strategy for LTC is self-insurance, which is the concept of relying on one’s personal savings, investments, home equity, reverse mortgages, etc. to pay for LTC expenses. The problem here is that LTC can be extremely expensive, and no one knows exactly what kind of care will be needed and for how long. This strategy is only appropriate for people with significant liquid assets that extend well beyond anticipated needs during their working years and in retirement.
Medicaid and self-insurance are therefore for people on opposite ends of the wealth spectrum, and Medicare doesn’t sufficiently cover LTC. For people who have too many assets and income to qualify for Medicaid and too few to self-insure, the solution is generally private LTC insurance. This type of insurance involves paying premiums to an insurance company, which will then pay out a benefit in the case of a covered LTC claim.
Types of LTC Insurance
Stand alone, or “traditional,” insurance covers LTC services only. These policies have a specified maximum monthly and lifetime benefit amount, a maximum period over which benefits can be paid out, and can include inflation protection so that the benefit limits increase every year by a fixed percentage.
Another advantage is that the premiums paid may be tax deductible. However, the premiums are not fixed and can increase in the future. Additionally, because these policies only cover LTC, if the insured individual doesn’t end up needing LTC, no benefits will be received.
“Hybrid” products combine LTC with permanent life insurance. Essentially, these policies offer a pool of money that can either be accessed during life for LTC, at death in the form of a death benefit paid to the insured person’s beneficiary, or a combination of the two.
The initial premiums for these policies are typically higher than those of an equivalent standalone policy, but the premiums are fixed and cannot increase. Therefore, if standalone LTC premiums increase enough over time, as they have in the past, a hybrid policy may actually cost less in the long run.
Another benefit of this type of coverage is that if the insured person doesn’t need LTC, there will be a death benefit from the life insurance component paid to the beneficiary at death. So, regardless of whether there is an LTC need or not, the insurance company will pay some kind of benefit.
When to Consider LTC Coverage
While many people first start to think about LTC in their 50s or 60s, we’ve seen a number of clients cover this risk earlier as well.
Many young professionals in their 30s and 40s identify a need for permanent life insurance, as opposed to term insurance. In these cases, it’s often prudent to purchase a hybrid life and LTC policy that accomplishes their life insurance goals while also covering the risk of LTC.
With life and LTC insurance, the younger and healthier a person is when purchasing a policy, the less expensive the premiums will be. So, it can be beneficial to seek coverage earlier, especially for people who know that they are at a higher risk for eventually needing LTC.
How Park Piedmont Can Help
Park Piedmont frequently helps clients in this area of planning, including working with vetted outside insurance firms that coordinate the process of acquiring LTC insurance. As fiduciary advisors, we often prepare quotes, evaluate different policy options, provide second opinions on coverage, and analyze how LTC fits into the broader financial plan.
For clients who decide to pursue LTC and/or life insurance through Park Piedmont, our team acts as a primary point of contact throughout the entire application process. Please reach out to your advisor if you have any questions about Long-Term Care planning.
Important Additional Disclosures
As your investment advisor, Park Piedmont is a fiduciary. Whenever making recommendations – on investments, insurance, or any other financial life planning topic – Park Piedmont’s focus, first and foremost, is on what’s in your and your family’s best interest.
Disclosing potential conflicts of interest is an important part of being a fiduciary. Nick Levinson and Nate Levinson, as licensed insurance agents, earn commission-based compensation for selling insurance products to our PPA clients. Park Piedmont receives 50% of the commission payable on the sale of any life, disability, or Long-Term Care insurance product to Park Piedmont clients if purchased through Quantum Insurance Services or RIA Insurance Solutions. Insurance commissions earned by Nick Levinson and Nate Levinson are separate and in addition to our advisory fees.
Park Piedmont clients are under no obligation to take PPA’s recommendations or implement any insurance policies, even if they have already applied for policies and/or been approved for coverage.