The Importance of Long-Term Care Planning

Guest Post by Dennis Ho

The COVID-19 crisis has many people concerned about long-term care, whether they will need care for an age-related condition or one that strikes at random. If a person becomes too ill or disabled to care for themselves and needs long-term care, costs could add up quickly.

According to the 2019 Lincoln Financial Cost of Care Survey, the national average cost for a home health aid is $25 per hour. Having an aid visit a few hours a week might be manageable, but if you need someone for 40 hours per week, costs could run $52,000 per year on average. According to the same survey, an assisted living facility averages $58,464 per year and a nursing home averages a whopping $110,595 per year.

What most people do not know is that private health insurance and Medicare do not generally cover such care, and Medicaid will only pay when a person has depleted the vast majority of their assets, potentially leaving their spouse or family living in poverty. 
 
The good news is that long-term care insurance (LTCi) remains a viable option. LTCi provides benefits to help pay for care if you need help with your daily living activities such as getting around, dressing, bathing or eating. LTCi offers the flexibility to pay for care without burdening one’s family, physically or financially. And because people who need long-term care get care on average for about three years, having insurance can mean protecting hundreds of thousands of dollars of your hard-earned retirement assets. 
 
When you purchase a policy, you decide on the monthly benefit amount you’d like to receive if you need care and also a total benefit pool. For example, you might choose a policy that pays up to $6,000 per month for care with a total pool of $216,000. If you qualify for benefits, you can draw up to the monthly amount until your total benefits are exhausted. In the policy above, this means you could draw up to $6,000 per month to pay for care. If you used this full amount every month, you would have three full years of coverage before the $216,000 was exhausted. If you used less in any month, the difference would remain in the benefit pool and you could use it in the future.
 
To help people learn more about long-term care insurance and to get a sense for the cost, Saturday Insurance offers a free online long-term care insurance assessment that’s available here.

Shopping for coverage

If you’re interested in exploring insurance, LTCi is available all the way up to age 79. Here are some tips to help you find coverage that’s right for you:

1. Assess your coverage goals. How much does care cost in your area? What are your goals for insurance: Do you want maximum coverage so you could afford a nursing home or just basic coverage that will pay for home care? There are a range of insurance products available, so having a clear sense for your goals will make it easier to assess which products fit and which don’t.
2. Set aside a clear budget. It’s easy to be scared into buying as much coverage as possible, but insurance won’t do you any good if you can’t afford to keep the policy. Also, you want to keep enough funds to support other retirement needs. A good rule of thumb is to spend no more than 10%–15% of your retirement savings on LTC insurance.
3. Be open to a range of solutions. The two most popular types of LTCi policies are “Traditional Policies” and “Hybrid Policies.” The long-term care benefits work the same way, but how you pay for the policies, what benefits you receive if you don’t need care, and various other guarantees are different. Which one is right for you will depend on your personal situation and preferences, so make sure to explore both initially. This will give you the best chance of finding the right coverage for your situation. Related to this, make sure to work with an independent agent that can show you multiple options and not one that only offers products from one insurer.
4. Buy from a reputable insurer. Since you might hang onto your LTCi policy for 30 years or more, it’s worth reiterating that you should only purchase from reputable and financially strong insurers.
5. Don’t drag your heels. Long-term care planning is one of those topics that’s easy to put off. Yes, waiting a year or two probably won’t change the price dramatically, assuming insurers leave their current pricing unchanged. However, that’s a big assumption. Due to low interest rates and concerns about the risk, insurers across the industry have been raising their prices over the past few years. Buying earlier will give you the best chance of locking in the lowest prices. In addition, underwriting is fairly strict. If you develop certain health conditions, insurance might not be available at any price. 

Perhaps the most important thing to know about LTCi is that it can be incredibly valuable for individuals and families in that the right policy will allow them to make their own decisions about how they will be cared for when help is needed.

Dennis Ho is a life actuary and chief executive of Saturday Insurance, an independent, online insurance agency that helps people shop for life, disability, and long-term-care insurance. Prior to co-founding Saturday Insurance, Dennis spent 20 years in the insurance industry in a variety of actuarial, finance and business roles. He has been a contributor to Humble Dollar, Kiplinger, and other publications.