Chances are that as you age, you may need long-term care at some point … one viable option: hybrid long-term care insurance.
Unfortunately, there is a stealthy stalker that could raid a retiree’s savings and destroy their financial security. It’s the cost and expenses of extended long-term care — the assistance many retirees will need as they age to manage the tasks of everyday life, such as bathing, dressing and personal care. For those less ambulatory, this may also include transferring to and from a bed to a chair.
Long term care is care that you need if you can no longer perform everyday tasks by yourself due to chronic illness, injury, disability, or the aging process. It isn’t care that is intended to cure you; it’s ongoing care that you might need for the rest of your life. This means you may need help with activities of daily living, such as bathing, dressing, continence, eating, toileting, and transferring. In general, traditional health insurance plans do not pay for the chronic, ongoing assistance with daily living that is most often associated with long term care.
The need for long term care can happen to anyone at any time. It can occur because of an extended illness such as cancer, a disabling event such as a stroke, a chronic disease such as multiple sclerosis or Alzheimer’s, or a permanently disabling automobile or sporting accident.
In many cases, however, retirees need long term care due to aging. As we live longer, into our 80s, 90s, and even beyond, health conditions that we’ve managed successfully for years may become worse. We may lose our ability to function independently on a day-to-day basis, resulting in the need for assistance.
Everyone should have a plan for long-term care. This could mean needing some extra help with everyday activities as you age. The benefits of long-term care insurance go beyond what your health insurance may cover by reimbursing you for services needed to help you maintain your lifestyle if age, injury, illness, or a cognitive impairment makes it challenging for you to take care of yourself.
According to AARP, 52% of people who turn 65 today will develop a severe disability that will require long-term care at some point in retirement. The U.S. Department of Health and Human Services reports that 70% of people over 65 will need long-term care at some point in their lives.
“The older you are, the more likely you’ll need long term care.”
U.S. Department of Health and Human Services
A 2019 study by Georgetown University Medical Center reported: “Nursing home care is arguably the most significant financial risk faced by the elderly without long-term care insurance or Medicaid coverage.”
2019, the annual Genworth Cost of Care Survey found that the median monthly cost in the U.S. for long-term care was $7,513 for a semi-private room at a nursing home, $4,385 for a home health aide, and $4,051 for an assisted living facility. Cost of care can be expensive and it’s important to understand the financial impact a few years of long-term care can have.
- Nursing Home Care: The average cost of a year’s care in a private Medicare-certified long-term nursing home room is $104,000.4
- Home Care: The average in-home care costs $49,920 a year for 40 hours of help per week.4
- Assisted Living Care: A year in a 1-bedroom assisted living care facility averages $57,000 per year.4
Medicare and Medicaid
Many think that government programs such as Medicare and Medicaid will pay for all of their future long-term care needs. Surprisingly, they may only pay for some of these services and have many restrictions.
Medicare: May cover a maximum of 100 days of services after a hospital stay.2 Coverage is designed to assist people during a short-term recovery and doesn’t include personal care or supervision services. Medicare won’t pay for what it calls “custodial care” unless you require skilled services or rehabilitative care, and even then, there are limits.
Medicaid: If you have limited assets and income and are relying on Medicaid, the state may make key care decisions on your behalf, including where you receive the care you need. Medicaid won’t kick in unless your income is below a certain threshold and you meet minimum state eligibility requirements.
Traditional long-term care policies are becoming increasingly difficult to qualify for coverage. Premiums, which are lower if you buy in when you’re young, can increase and become unmanageable when you’re older. And, just like car, health or homeowners insurance, if you end up never needing the policy, you lose all the money you’ve paid in.
Hybrid Insurance
A hybrid insurance policy, also referred to as asset-based long-term care, combines long-term care insurance with permanent life insurance. A policy of this sort provides both living and death benefits.
You can purchase this type of policy with a single upfront premium, with a set of premiums for a fixed term or with ongoing premiums. If you need long-term care (due to age, illness, etc.), you can withdraw the funds from your life insurance policy, and when those funds run out, the insurance company will pay. If you don’t need care, or if you have some money left over after receiving care, your heirs will receive the remaining insurance benefit 100% tax-free.
Like all financial strategies, hybrid policies have pros and cons. The premiums can be higher compared to a traditional long-term care policy, and it’s important to be clear about what types of care will qualify under the policy you choose. But the underwriting process is typically less rigorous for a hybrid policy, and a couple can share one policy. This can make obtaining coverage easier and more affordable than a traditional policy.
As long as you pay your premiums, you’ll have a contractually guaranteed death benefit, guaranteed cash value and a guaranteed amount of long-term care coverage. And if, for some reason, you decide to cancel the policy, you can get most of your premiums back — once you pass a designated surrender charge period. That’s a way out that traditional long-term care insurance doesn’t offer.
Long term care insurance (LTCI) provide benefits to cover services you may need if you’re unable to care for yourself or your family, due to chronic mental or physical conditions. Because there is no one-size-fits-all when it comes to long term care insurance, people must choose among policy options such as daily benefit amount, benefit period, and inflation protection options
One of the largest providers, the Federal Long Term Care Insurance Program (FLTCIP) is one of the largest LTCI programs and is available to all federal employees and military service members. The Federal Long-Term Care Insurance Program is designed to reimburse for long-term care services at home or in a facility such as assisted living, adult day care or a nursing center.
Long term care insurance may be a smart way to protect your income and assets and remain financially independent should you need long term care services at home, in a nursing home or an assisted living facility, or in other settings.
References:
- https://www.kiplinger.com/retirement/long-term-care/long-term-care-insurance/601056/even-in-good-times-a-silent-stalker-can
- https://journals.sagepub.com/doi/abs/10.1177/1077558719857335?journalCode=mcrd&
- https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
- New York Life Cost of Care Survey, 2018
- https://www.genworth.com/aging-and-you/finances/cost-of-care.html
- https://www.military.com/military-report/long-term-care-insurance.html
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U.S. Department of Health and Human Services. “The Basics,” https://longtermcare.acl.gov/the-basics/
- https://www.brownleeglobal.com/ltc-daily-benefit-amounts/
