By Dan Schulte, Senior Vice President and Manager, Annuities and Insurance
The idea of having a prolonged physical illness, disability or a long-term cognitive impairment, such as Alzheimer’s, can be frightening. So much so that you might not want to think about it at all. However, having a long-term care event without proper planning could result in a significant economic hardship for you and your loved ones.
Consider this:
- The national average for 24-hour home care or for one year in a nursing home can cost more than $100,0001
- At least 70% of people over the age of 65 will require long-term care at some point in their lives, with 20% requiring care for longer than five years2
- From 2022 to 2023, the cost for a home health aide has increased by 10%, and nursing home care has increased by 5% annually1.
If these stats scare you, it probably makes sense to develop a long-term care plan and share this plan with your loved ones.
Traditional long-term-care (LTC) insurance allows individuals to customize policy benefits and features based on their specific situation and cost of care in their area. These policies provide a tax-free pool of dollars to cover services in a facility or in the home. However, in these types of programs, the premiums paid are lost, unless the insurance is used to pay a claim. Because of this “use-it-or-lose-it” aspect of traditional LTC insurance, many individuals elect to “self-insure” by using their personal funds to cover potential long-term care costs.
Some people like the idea of “self-insuring” the long-term care risk because they want to maintain control over their own assets without restrictions. Also, if long-term care is not needed prior to death, they can leave these assets to their beneficiaries or to charity. The primary risk to the “self-insurance” strategy is if long-term care expenses exceed what was set aside to cover long-term care costs, even those with significant assets could erode their wealth very quickly due to the high cost of care.
Asset-Based LTC Insurance—An Alternative to Self-Insurance
In recent years, insurance companies have developed life insurance and annuity policies that can pay income tax-free benefits for qualified long-term care expenses. These policies have death benefits and account values and may even have an investment component. If an applicant can get approved medically, these types of coverages can provide an alternative to self-insurance for long-term care expenses. Avoiding the “use-it-or-lose-it” aspect of traditional LTC, these products offer an income-tax-free death benefit if care is not needed.
There are a variety of LTC planning issues and insurance options to consider. Contact your financial advisor for help with evaluating your situation and developing a plan based on your current assets, health situation and cost of care in your area.
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.
1Genworth cost of Care Survey, 2023
2 2024 U.S. Department of Health and Human Services (https://acl.gov/ltc/basic-needs/how-much-care-will-you-need).