Long-Term Care Insurance—Is It Right for You?

“I look forward to growing old and wise and audacious.” -Glenda Jackson

We’re all growing older, albeit some more gracefully than others. Since we can’t stop time, each day, week, and year puts us one step closer to our golden years. How each of us prepares for our retirement years is different, but what we all have in common is that we need to have a plan—and the sooner we start planning, the better.

Investment advisers will tell you that you should start building your retirement savings at a young age. The sooner you start, the more that savings compounds over the years. Start contributing in your 20s, and you could be sitting pretty when your 60s roll around.

What few young people consider in their planning is their potential long-term care needs. We believe a sound retirement plan must include this possible cost.

The AARP estimates a 50% chance that you will have long-term care expenses one day. Long-term care services will come into play if you develop a chronic illness or face a disability that requires you to purchase assistance for your daily living. The benefits you may need include: in-home care services, moving into an assisted living facility, or even being placed in a nursing home.

Most people prefer the security, comfort, and familiarity of their own home and want to stay there as long as possible.

The number of home-care agencies has increased significantly over the past five years to keep up with the growing demand for in-home services, and that growth is expected to continue. The Labor Department recently reported that they anticipate employment of home-health and personal-care providers to rise 34% between 2019 and 2029, making it the sixth-fastest-growing job market in the U.S.[1]

Some people, however, value the social aspects and conveniences nursing homes and assisted living facilities provide, seeing it as an advantage over being home alone. According to the National Center for Health Statistics, there are nearly 29,000 assisted living facilities in the U.S., 15,600 nursing homes, and 4,300 hospices, with approximately 1.7 million licensed beds in nursing homes.[2]

Our preferences and needs will differ when the time comes to purchase long-term care; thankfully, there are a wide array of choices available.

The big question will be: If you need long-term care assistance, how will you or your family pay for it?

You need to understand that Medicare does not pay for long-term care expenses. Medicare only pays for home care or nursing home services for up to 100 days. If you require care for more extended periods, you will need to fund those expenses yourself.

The cost is not insignificant, either. According to AARP, long-term care expenses can cost an individual upwards of $140,000/year, on average.[3]

An option growing in popularity concerning paying these expenses is long-term care insurance. If you do not have long-term care insurance, you will be required to pay for your long-term care out of your retirement savings. Many people are choosing to buy long-term care insurance to protect their savings.

Long-term care insurance covers expenses that your traditional health insurance and Medicare do not cover. Most long-term care insurance will cover the costs for in-home care services, assisted living facilities, nursing homes, and adult daycare.

When you purchase a long-term care insurance policy, there will be many choices to make. How much coverage will you need? No one knows what their insured risk will be, so you have to exercise judgment on what you select. Generally, the coverage is quoted as a dollar benefit paid per day or per month. Most policies then limit the total amount paid on the policy.

All considered, it is essential that you know the costs of long-term care in your area. These costs can vary wildly from one region to another. Once you understand the local prices, you can then start quantifying the coverage you buy in terms of the number of years you will pay for care. That number is significant when purchasing the policy and incorporating the policy into your financial plan.

Long-term care insurance can also open the doors to more (and better) nursing homes and care facilities. Suppose you’re relying on government assistance like Medicaid to cover your care costs. In that case, many states limit which facilities you have access to—and some states don’t allow Medicaid to cover assisted living costs.

Keep in mind that you should purchase long-term care insurance well before you need it. You won’t qualify for long-term care insurance if you already have a chronic or debilitating condition. As a result, it’s usually a good idea to consider purchasing a long-term care insurance policy well in advance of any health concerns.

The younger you are when you buy the policy, the less you’ll pay in premiums. AARP notes that initial premiums for a 65-year-old are often 8% to 10% higher than for an individual who is 64 years old. As with any insurance, your premium will also vary depending upon the level of coverage you desire.

Long-term care insurance is undoubtedly an efficient, flexible, and often critical component of your financial plan, but it may not be suitable for everyone. At Nicollet Investment Management, we understand that your financial situation, goals, and future needs are different from everyone else’s. As such, there is no “one size fits all” when it comes to your long-term healthcare needs. Give us a call today, and we’d be happy to discuss what options might best suit your current and future situation.

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[1] https://www.nytimes.com/2021/04/14/health/health-care-jobs.html

[2] https://health.usnews.com/health-news/best-nursing-homes/articles/nursing-home-facts-and-statistics

[3] https://www.aarp.org/caregiving/financial-legal/info-2018/long-term-care-insurance-fd.html