Understanding Long-Term Care Planning

“Unless you’re very rich or very poor, you should be looking into all of the long-term care possibilities out there. Because of the costs and complexity involved, the choice isn’t easy. But it is necessary.”

There is no easy way to plan for long-term-care expenses. According to the U.S. Department of Health and Human Services, 70% of those age 65 and over will need some sort of long-term care. Paying out of pocket won’t be possible for most, because the national median annual cost of a private nursing room is $97,455.  In New Jersey that amount is closer to $156,000. annually

Kiplinger notes, in its article, “The Impossible Reality of Long-Term Care Planning,” that the long-term care insurance industry is in flux, with many companies closing this part of their business because claims are much higher than expected.

While there’s no perfect, easy solution, you can consider long-term care insurance. The other options are to be very wealthy and pay out of pocket, or try to qualify for Medicaid.

Most of us have a financial situation that could be ruined by the average long-term care event. The best bet is to transfer some of the risk to an insurance company. The issue then becomes determining the right amount. Many insurance agents recommend a monthly benefit that is aligned with the average facility cost. But given the high cost of long-term care insurance, it should be used to fill a gap, not cover the entire expense. Don’t reach to buy a policy you can barely afford today, because premiums can skyrocket.

As far as the type of policy, traditional long-term care insurance is the easiest to understand and the type everyone bought until a few years ago. While you’re covering a big risk from both a likelihood of need and a dollar perspective, it’s expensive.

The life insurance industry recently introduced a hybrid universal life insurance with long-term care riders. This is permanent universal insurance with flexible premiums. “Riders” are like guarantees. In effect, these are policies with set periods for the premium. You can pay for them all up-front or over time. Premiums are guaranteed not to rise, and if you don’t use the insurance, it will pass to the next generation as a death benefit.  However, the death benefits are lower than they would be without the long-term care part, and the monthly benefit amounts are typically lower than they would be for the same amount in a traditional policy. Some will take this tradeoff for the certainty of knowing the amount of their premiums.

This insurance isn’t easy to get: there’s a standard life insurance exam plus a memory test. If you have health or cognitive issues, an annuity with a long-term-care rider may be the only option.

Reference: Kiplinger (January 2, 2018) “The Impossible Reality of Long-Term Care Planning”