Considerations and Options to Cover Long Term Care Expenses

By Jane Young, CFP, EA

Generally, everyone needs a plan to cover the cost of long-term care (LTC) and the most common options are self-insuring or LTC insurance. The decision depends on several factors including family, income and assets, marital status, health, age, gender, lifestyle, and financial goals.

If you have family members to provide support and care, you may be able to remain at home longer without hiring paid caregivers. While a spouse may reduce care expenses by providing in-home care, a surviving spouse can also increase the need for long-term care insurance. If one spouse goes into a long-term care facility, the couple faces the cost of maintaining two households. This can quickly deplete assets eventually needed by the healthy spouse. When a single individual or surviving spouse needs care, they can often cover the cost of care by tapping into the equity in their home.

If you have sufficient assets, generally more than $1million, self-insuring may be optimal. Health and family history also influence the need for care and ability to qualify for insurance. A common misconception is that people living a healthy lifestyle will be less likely to need long-term care. However, leading a healthy life may result in a longer life expectancy with an increased chance of needing care. Additionally, women generally have greater longevity than men, so they are more likely to need care.

Your financial goals also influence your strategy to cover LTC. LTC insurance may provide greater peace of mind, or you may want insurance to protect your assets to leave a legacy to children or a charity.

The best time to purchase LTC insurance is between the ages of 55 and 65. The goal is to purchase insurance before you have pre-existing conditions without paying for coverage several years before it may be needed. LTC insurance usually provides a set amount per day for a set period of time, usually three years. Most policies have an elimination period of 90 days. To qualify for benefits you must meet strict requirements that usually require the inability to perform two to three activities of daily living such as eating, dressing, bathing, transferring, and toileting.

The cost of LTC insurance is extremely high and premiums are expected to continue increasing. Once you purchase insurance you cannot be denied coverage based on changes in your health unless you deplete your benefits or stop paying premiums. Based on the American Association for Long-Term Care Insurance’s 2022 annual pricing survey, the average annual premium for an initial policy benefit of $165,000, with a 3% inflation adjustment, for a 60-year-old with a “Select Health” rating is $2,525 for a male, $4,300 for a female, and $5,800 for a combined policy.

Alternatively, consider putting money aside to self-insure, Health Savings Plans can be a useful tool to self-insure. Another option is the purchase of a hybrid plan that combines long-term care with life insurance or an annuity.