Do I Need Long-Term Care Insurance and How Does It Work?
Policy experts and families alike have long noted that the United States lacks a comprehensive
public system for long-term care.
Medicare generally does not cover these services, and while Medicaid can help, it is available
only to people with very limited assets, often requiring a spend-down that can leave little or
nothing for loved ones.
Private long-term care insurance (LTCI) offers a potential solution, but the market is more
exclusive than it once was. The policies still available today are typically designed for relatively
healthy people who can afford higher premiums.
In recent years, interest in the LTCI market has grown again, thanks in part to hybrid life
insurance/LTC products. While LTCI is not right for everyone, both traditional and hybrid policies
can play a useful role in protecting assets and supporting long-term care strategies.
What LTCI Is - and Is Not
KFF Health News and the New York Times recently published a series explaining why "few can
afford to grow old" and many Americans are "dying broke" due to high long-term care costs and
no universal public care system.1
Given this reality, a private LTCI policy may seem like a no-brainer. Yet the contraction of the
LTCI market over the past few decades shows that this is a limited tool with a small target
audience.
Around 70 percent of people aged 65 and older will need long-term care services during their
lifetime, but fewer than 5 percent of Americans aged 50 and older own a long-term care policy.2
LTCI emerged in the 1970s and 1980s as a mass-market product, similar to life insurance but
specifically designed to cover services that standard health insurance and Medicare typically do
not pay for. It typically covers the following services:
- In-home care. Assistance with daily activities while staying at home
- Assisted living facilities. Supportive housing with care services
- Memory care. Specialized care for people with Alzheimer's or other memory-related
conditions
- Skilled nursing or nursing homes. Long-term skilled care in a facility with professional
medical support
LTCI generally does not cover the following services:
- Short-term medical care that Medicare already pays for
- Care that does not meet policy requirements (Most policies only pay when you have
significant cognitive impairment or cannot perform at least two activities of daily living, such
as bathing or getting dressed.)
- Informal care by family or friends unless it meets the policy's rules for coverage
What Else to Know About LTCI: Pricing, Options, and Fit
Why are more Americans not purchasing long-term care insurance? Let's start with the benefits.
Here is what LTCI can do:
- Provide dedicated funds for care
- Preserve assets for heirs
- Offer flexibility in choosing where and how care is provided
- Reduce reliance on family caregivers and Medicaid planning, including having to spend
down savings
- Support spousal planning
But LTCI is far from a perfect solution and is not one-size-fits-all. These are some important
factors to consider:
- Hybrid life/LTC products are growing in popularity,3 combining long-term care coverage with
a death benefit. They may be especially appealing to younger buyers or sandwichgeneration
families.4
- Some policies (especially older or narrowly designed ones) may not pay for all the care you
assume is covered,5 leading to substantial out-of-pocket costs.
- Modern policies often have stricter health requirements and more conservative pricing.
- A policy for a 55-year-old single man averages roughly $950 per year and about $1,500 for
a single woman. A married couple of the same age purchasing coverage together may pay
around $2,080 annually, with higher premiums for inflation protection, according to the
American Association for Long-Term Care Insurance.6
- Plan features that affect pricing include age at the time of purchase, medical history and
current health, daily or monthly benefit amounts, benefit duration, inflation protection, and
waiting periods.7
With these factors in mind, LTCI may be worth considering in the following circumstances:
- You have meaningful assets at risk and want to reduce the possibility of care costs wiping
out your savings.
- You want to preserve a legacy rather than using those assets for self-funded care.
- You want to protect a spouse's financial stability if your partner requires care.
- You want to reduce the risk that care expenses will disrupt investments or other financial
goals.
- You are healthy enough to qualify and can afford to pay premiums over the long term.
LTCI may not be a good fit in the following circumstances:
- You have limited cash or income flexibility, and premiums would stretch your budget or
make other financial goals harder to achieve.
- You expect to rely primarily on public benefits; if you are planning for Medicaid to cover your
care, LTCI may not be necessary.
- You have already arranged savings or trusts to cover care.
- You face health issues that may make it difficult or expensive to qualify for coverage.
- You are unwilling to commit to long-term premium obligations, preferring financial flexibility.
Whether LTCI is right for you comes down to a personalized analysis. The need for long-term
care is becoming more common among aging Americans. However, a dedicated care policy is
just one tool within LTC planning and the larger planning picture. You should evaluate its fit
alongside your legal documents, insurance coverage, and financial goals so that long-term
care - if it becomes necessary - does not dictate the choices available to you and your family.
Know that we are at your side throughout your aging and retirement journey, wherever it leads
and whatever solutions it 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 Counselors 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.
