Long-Term Care Insurance

Why Long-Term Care Insurance Matters

Look at the following statistics. If they don't make you take a long look at obtaining some kind of long-term care insurance (LTCI), nothing will.

• On average, a majority of people age 65 or older will need some form of long-term care.
• The average daily cost of a private nursing home room, and of an assisted living facility, runs well into six figures annually — and can be significantly higher depending on the state.
• Among Americans 65 and older with incomes above $20,000, only a small fraction have LTC insurance.
• "Failure to prepare for the cost of a nursing facility stay or other long-term care is the primary cause of impoverishment among the elderly." (The American Health Care Association)

Do you have LTCI? Based on the statistics, we know for most the answer is no. Should you have LTCI? Based on the statistics, we know the answer is yes — if a year in a nursing home runs well over $100,000, how many years would it take to spend a good percentage, if not all, of your wealth?

There are really two reasons people don't buy LTCI: cost (it can be expensive) and a sense that "it won't happen to me." The sad truth is that the people who do buy LTCI are usually people who watched a loved one or friend feel the devastating financial effects of LTC costs without coverage.

Coverage varies by policy — some cover only nursing home care, others cover in-home care and more, typically up to a daily or monthly limit. Coverage is usually triggered when you can't perform 2 of the 6 "activities of daily living" (ADLs): bathing, dressing, toileting, transferring, continence, and eating without help.

Ways to Obtain LTC Coverage

Traditional LTCI provides the most coverage but is also the most expensive — like term life insurance, if you don't use it, you don't get the premiums back.

Single-premium life insurance with an LTC benefit is an option most people aren't aware of. If you have LTC costs, the policy pays; if you never need it, the premium you paid is often accessible again through a return-of-premium option. Some of these policies also grow money similarly to a CD or money market account — a good fit for clients who keep money in CDs "just in case" but don't want to fully commit it to traditional LTCI.

Retirement Life™ can also be a terrific way to grow wealth without stock market losses, tax-free, while including a chronic-illness rider as a byproduct — if you can't perform 2 of 6 ADLs, the insurance company will release a portion of the death benefit early, tax-free. It's not as robust as a dedicated LTCI policy, but if you're buying a policy to build wealth anyway, why not one with a chronic-illness benefit included?

Most people don't realize that LTCI premiums can, in some cases, be fully tax-deductible when structured correctly through a business — see our Tax Planning page for how that works.

Information provided is not intended as tax or legal advice and should not be relied on as such. You are encouraged to seek tax or legal advice from an independent professional.

Single-Premium Life for Long-Term Care

A single-premium life (SPL) policy is designed to act partially like an annuity and partially like an LTC policy — funded partly for the death benefit, but also for significant "living" benefits accelerated for LTC expenses (and often critical or terminal illness). Benefits typically include:

• Simplified issue — not medically underwritten like traditional life policies.
• Long-term care benefits built directly in — the main reason clients use them.
• Avoiding probate — because the payout is a death benefit, it passes outside the probate process, which in some places can save heirs up to 10% of the asset's value.
• Liquidity — some SPL policies include a Return of Premium option, letting you surrender the policy at any time for your full premium back.
• Other living benefits, such as terminal or critical illness riders, letting you access a significant portion of the death benefit while living.

Example. Consider a 65-year-old client with $100,000 sitting in CDs who doesn't want an annuity because of surrender charges but is worried about LTC expenses. An SPL policy could provide a death benefit well above the CD balance if she dies before needing care, liquidity through a return-of-premium option if she needs the cash, and a total LTC benefit worth several times the CD balance if she does need care.

This example is for illustrative purposes only and does not take into account your particular investment objectives, financial situation, or needs and may not be suitable for all investors. It is not intended to project the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.

When to Actually Buy Coverage

Timing matters more with long-term care coverage than with almost anything else in a financial plan, because eligibility is medically underwritten — you have to qualify health-wise to get coverage at all, and premiums are priced based partly on your age and health at the time you apply. Waiting until you're certain you'll need care is waiting until it's too late; by definition, once care is needed, the coverage window has already closed. Most people who end up with good coverage bought it well before they needed it, often in their late 50s or 60s while still in reasonably good health.

That doesn't mean earlier is always better in every case — buying too early can mean paying premiums for many extra years before there's any real chance of using the coverage. The right window is usually somewhere in the years leading up to retirement, which is exactly why this is worth discussing as part of a broader retirement timeline conversation rather than as an isolated decision made in a hurry.

How This Fits With the Rest of Your Plan

Long-term care coverage doesn't exist in isolation. It connects directly to your asset protection strategy (LTC costs are one of the "creditors" most people don't plan for), your Medicaid planning (the right LTC coverage can reduce or eliminate the need for Medicaid later), and your estate plan (an uncovered LTC event is one of the fastest ways an otherwise solid estate plan gets derailed). I look at all of these together, because a long-term care decision made in isolation from the rest of your plan often ends up working against something else you've already put in place.

Frequently Asked Questions