Advantages to Long-Term Care Planning

Situations requiring long-term care will most likely affect many of us in our lifetimes. In fact, about 70% of individuals turning 65 years old this year will need some level of long-term care in their remaining years. There are different levels of long-term care, with correspondingly different costs. Those who live in an assisted living community may pay around $6,000 monthly, while those who require a room in a nursing home can expect to pay over $10,000 per month for their care. Without proper planning, long-term care expenses have the potential to impact your life savings or put a financial burden on your family members. By establishing a long-term care plan early, you can enjoy the peace of mind that comes with knowing your financial future is secure.

What is long-term care?

Long-term care describes a range of services that help someone care for themselves. Often, it is provided by skilled caregivers either at home or in a facility devoted to assisting people in completing Activities of Daily Living (ADLs), of which there are six: eating, bathing, dressing, toileting, transferring between a bed and a chair, and caring for incontinence.

While health insurance covers immediate medical conditions and ongoing treatment, very few policies cover prolonged care at a residence or nursing home. This care is most often required as a result of a chronic physical condition, illness, disability, or cognitive impairment. As opposed to most medical care, long-term care is not designed to cure a medical condition, but to help the individual address daily or ongoing needs created by the chronic condition.

How much does long-term care cost?

The cost of long-term care depends on various factors including the age, gender, health status, and living arrangements of the individual receiving it. Cost generally increases with age, the level of medical care required, the duration of care, and the location where care is provided. For rough planning purposes, the national median is currently over $127,000 a year for a private room in a nursing home and over $70,000 a year for assisted living or trained home services. These costs are likely to increase with inflation by an estimated 3% per year.

It’s important to note that the majority of these costs will not be covered by health insurance, including Tricare, Medicare, and the VA Health Administration. Health insurance and Medicare generally cover long-term care costs that are rehabilitative, short in duration, and medically necessary – and are not designed to cover the custodial and personal care services provided by long-term care.

VA long-term care services may be available to veterans. However, eligibility depends on many factors including the veteran’s overall disability rating and, in some cases, income. The VA does not pay directly for room and board in live-in facilities, but does have programs that may offset costs or help veterans stay in their homes like the VA Aid and Attendance and Housebound allowance benefits and the Veteran-Directed Care (VDC) program. These benefits are supplemental, have eligibility requirements, and may require co-pays that vary with the veteran’s income. Visit the VA website for more information.

Medicaid will pay for a large share of long-term care services. To qualify, the individual receiving care must have an income below a certain level and meet minimum state eligibility requirements. These requirements are based on the amount of assistance an individual needs to accomplish their ADLs.

How do you plan for long-term care?

There are a few different strategies to prepare for long-term care costs, so it is important to consider which would be best for your family and financial situation.

1. Plan to self-fund the costs.

You can pay for the cost of long-term care yourself or ask family members to help you pay. This is the financially riskiest option and may only work well for high-earners and those with large nest eggs, as well as those currently in good health with no family history of long-term care needs.

2. Purchase a traditional long-term care insurance policy.

Most long-term care insurance policies cover your expenses in the event you are unable to perform two ADLs or in the event of cognitive impairment. Many of these policies require a premium payment until death or a qualified long-term care claim. Premiums are usually not fixed and can increase. Medical underwriting is almost always required for the approval processes.

It is important to keep in mind that long-term care insurance only covers long-term care costs, so there is a chance you will never see a benefit from premium payments. For this reason, this option can also be financially risky. It’s important to note that the number of companies offering traditional long-term care insurance policies in the U.S. is declining.

3. Purchase a life insurance policy with an accelerated death benefit.

Some life insurance policies, like Navy Mutual’s Flagship Whole Life Insurance, offer settlement options that allow access to your death benefit early if you require assistance performing two ADLs or become cognitively impaired for at least 90 days. It should be noted, however, that while these policies have long-term care features, they are not long-term care insurance.

This is considered the least financially risky option. The main advantage of this strategy is that premium payments result in a guaranteed benefit (the death benefit paid out after the death of the insured) even if you never need to use the accelerated death benefit feature to pay for costs associated with long-term care. Fixed-rate premiums are also possible with these types of insurance policies, locking in lower rates earlier on.

Who should plan for long-term care?

While not everyone will end up needing long-term care, everyone should plan for the possibility. Planning in advance allows you to select a strategy that meets your specific needs and gives you control over the type and quality of care you may receive. It will also allow you to depend less on others, protecting both your assets and your financial legacy.