Planning for Long-Term Care Needs


Long-Term care plays a pivotal role in addressing the evolving needs of individuals, especially as societies age and life expectancy rises. Many people will need long-term care at some point. However, it can be difficult to predict how much or what type of care a person might need. About 70% of Americans who reach age 65 will need some long-term care during their remaining years, and traditional Medicare does not cover it. The costs of care can vary depending on how long you require it, the state you live in, and how intense your needs are. Planning for long-term care is essential to ensure financial stability and to address potential health challenges in the future.

Self-Funding vs. Long-Term Care Insurance


Self-funding is one strategy to cover long-term care costs. These costs will need to be covered using your own resources, which include savings, investments, and other assets. The risk of this strategy is depleting your savings and assets quickly if you require extended care, which could impact your financial security and the legacy you leave behind for your loved ones. Choosing this option involves creating a comprehensive financial plan that will consider the potential costs of long-term care and how these costs will be covered. It could become a major issue if anything goes wrong or there are any unexpected expenses.

Long-Term Care Insurance

There are three main types of long-term care insurance.

1. Traditional Long-Term Care Insurance

Traditional long-term care policies are similar to auto and home insurance policies. You pay premiums and make claims if you need the covered services. You can choose how much you receive daily or monthly, up to a lifetime maximum or a certain number of years. Different amounts may be allowed for care in your home or a nursing home.

Policies also have varying waiting periods between the time you start needing care and when the insurance policy benefits begin. A typical waiting period is 90 days. Policies will also limit what conditions they cover. For example, alcoholism and drug addiction are two conditions that are typically not covered. A policy may also not cover pre-existing conditions, such as heart disease or cancer.

You become eligible for benefits once you can no longer perform a set number of daily living activities, like dressing, bathing, using the toilet, eating, getting in and out of beds and chairs, and becoming cognitively impaired. Once you become eligible for benefits, premiums are usually waived.

Traditional long-term care policies are “use it or lose it”.  You won’t receive any benefit if you never need long-term care.

2. Hybrid Policies

A hybrid policy combines coverage for long-term care with a life insurance death benefit. You pay one lump-sum premium, or a fixed amount over a period of years. In return, you get long-term care coverage with features like those found in traditional long-term care policies, along with some amount of life insurance death benefit that will go to your beneficiaries if you never use the long-term care benefits. If you do use long-term care benefits, the life insurance death benefit will be reduced or eliminated depending on the long-term care benefits used. Payment of long-term care benefits typically will reduce the death benefit proportionately. To receive long-term care benefits, a medical professional will need to certify that you can’t perform at least two of the daily living activities mentioned above.

Hybrid policies address the major concern of most individuals. One way or another, you will receive some form of benefit. It’s not “use it or lose it,” but this guarantee of some form of benefit is what causes hybrid policies to be more expensive than traditional policies.

3. Long-Term Care Rider

Like a hybrid long-term care policy, a long-term care rider is a living benefit on a life insurance policy that lets you access a portion of the policy’s death benefit every month to pay for long-term care expenses.  Like the traditional long-term care and hybrid policies, to receive the benefits from this rider, a medical professional will need to certify that you can’t perform at least two of the daily living activities mentioned above.

Long-term care riders on life insurance policies may be more affordable than standalone long-term care policies. And like a hybrid long-term care policy, if you don’t use your long-term care benefits, your heirs will get the full death benefit from your life insurance policy. It will also be proportionally reduced by the amount of long-term care benefits you may need.

There are many factors to consider when choosing to purchase a long-term care policy. The best time to think about long-term care is before you need it. Planning ahead can help manage long-term care costs and ensure financial security. Schedule a meeting with your MAI Wealth Advisor to discuss the best strategies that will benefit you.

Information as of December 12, 2023.

The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment, or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.

We look forward to learning about your financial goals.