Scary Financial Mistakes: Needing Long-term Care Without a Plan – pt 2, 2021

Oct 13, 2021

By Dan Schulte, Senior Vice President and Manager, Annuities and Insurance

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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 need without proper planning could result in a significant economic hardship for you and your loved ones.

Consider these statistics:

  • 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 5 years2
  • From 2004 to 2020, the cost for care in an assisted living facility has risen on average 3.80% 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 an individual 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 heirs 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, this product enables individuals to maintain control of the assets as they protect themselves and their savings from financial exposure to the long-term care expense risk.

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.


1 Genworth cost of Care Survey, 2020