Understanding Long-Term Care Insurance: Insights for Advising Your Clients
|
One way to manage long-term care risk is through a dedicated insurance policy. Long-term care
insurance (LTCI) covers care at home or in assisted living, memory care, or nursing facilities -
services that standard health insurance and Medicare do not typically pay for.
Although roughly 70 percent of people turning 65 will need some form of long-term care
services in their remaining years, fewer than 5 percent of Americans aged 50 and older
currently hold an LTCI policy.1 Why is the uptake so low?
Given the high potential costs of LTC, a policy may seem like an obvious solution. Yet the
contraction of the LTCI market over recent decades highlights that it is a targeted planning tool.
For advisors, therefore, it becomes important to identify which clients are appropriate
candidates for LTCI and under what circumstances.
What to Know About LTCI: An Advisor's Primer
Two major factors tell the story of LTCI over the years: price and complexity.
Long-term care insurance was created to bridge the gap left by Medicare for extended custodial
care. Introduced in the late 1970s and 1980s in response to rising nursing home costs, LTCI
later expanded to include home health and assisted living coverage.
Despite its original mass-market intent, the availability of traditional LTCI has shrunk
dramatically, reflecting higher premiums, tighter underwriting, and fewer standalone offerings.
Meanwhile, hybrid products have gained traction.
Advisors should be aware of five key trends:
- Decline of traditional LTCI. Most insurers have stopped selling standalone LTCI due to
high costs and pricing challenges, prompting carriers to raise premiums or exit the market.2
- Growth of hybrid or linked-benefit products. Combination life/LTC products now
dominate the market,3 offering dual value: care protection and a death benefit. These
products may appeal more to younger clients, especially family caregivers.
- Premiums and underwriting constraints. Conservative pricing and stricter health
requirements make eligibility and long-term affordability central planning considerations.
- Coverage gaps. Many policies, especially older or narrowly designed ones, do not cover all
the care clients may expect, leading to potential out-of-pocket expenses.
- Increased product complexity. Modern LTCI products vary widely in structure, benefits,
and cost, meaning that advisors must understand differences and not assume policy parity.
These trends underscore that LTCI is a strategic planning tool, not a default solution that applies
to every situation. It can complement trusts and other asset protection strategies, helping
preserve wealth and reduce care-related stress for clients and their families. It is not a planning
panacea for every client, however, and should be evaluated case by case.
Who May Benefit from LTCI
LTCI may be worth evaluating for a client in the following circumstances:
- Has meaningful savings to protect from the high costs of prolonged medical assistance
- Wishes to preserve their estate for heirs rather than liquidating assets for healthcare
- Wants to guarantee that one spouse's health crisis does not ruin the financial security of the
other
- Aims to keep their overall retirement and investment plans running smoothly without
interruption
- Is healthy enough to secure an insurance policy and financially stable enough to pay the
premiums over the long term
Who May Not Benefit from LTCI
LTCI may be less appropriate for a client in the following circumstances:
- Has limited income to support the burden of continuous, multiyear premiums
- Is actively positioning their assets to qualify for Medicaid and other public support
- Has already secured their estate through dedicated self-funding methods or trusts
- Cannot pass strict medical evaluations or cannot afford the high premiums associated with
their current health status
- Prioritizes immediate financial freedom over dedicating funds to a future insurance benefit
LTCI Considerations for Advisors
Once suitability is identified, advisors must evaluate policy design in light of the client's estate
documents, asset structure, and retirement income strategy.4 These are some key areas to
evaluate:
- Premium cost versus opportunity cost. Do projected premiums justify the expected
benefit relative to alternative uses of capital or liquidity needs?
- Benefit duration. Does the policy's benefit period align with realistic care timelines,
including the possibility of multiyear or indefinite dependency?
- Inflation protection. Will benefits retain purchasing power over time? What if care is
needed decades from now at rates far above today's assumptions?
- Elimination periods. Can the client comfortably self-fund care during waiting periods before
benefits begin?
- Policy flexibility and structure. Are benefit triggers, daily or monthly caps, and covered
care settings aligned with how the client would realistically receive (or prefer to receive)
care?
- Family dynamics. Can dedicated funding reduce stress on spouses or children who may
face caregiving or financial decision-making pressure?
- Ongoing review. As health needs, markets, and family circumstances evolve, does the
policy remain aligned with the client's estate and retirement objectives?
- Coordination with legal planning. Does the policy complement existing trusts, powers of
attorney, and asset protection strategies without duplicating or conflicting with them?
Building Long-Term Partnerships for Clients' Long-Term Care
Long-term care is becoming an increasingly common reality as Americans live longer and
retirement timelines extend past what many originally anticipated.
Changes in the LTCI market have introduced new products that can help address gaps in
Medicare coverage and reduce reliance on family caregivers. But these solutions are not perfect
and are far from one-size-fits-all.
Whether LTCI is right for a client comes down to careful analysis within the broader context of
their financial, retirement, and estate plans. By approaching long-term care planning with a longterm
perspective, advisors reinforce that they are at their clients' side throughout the aging and
retirement journey - whatever path it may take and whatever solutions it ultimately demands.
MEREDITH | PC
4325 Windsor Centre Trail
Suite 400
Flower Mound Texas 75028
214-513-1013
This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.
You have received this newsletter because I believe you will find its content valuable. Please feel free to Contact Me if you have any questions about this or any matters relating to estate planning.
