Do I Need Long-Term Care Insurance?
What is Long-Term care?
Long-term care (LTC) encompasses a range of services aimed at meeting individuals' personal care needs due to chronic illness, physical disability, or cognitive impairment. These needs often extend beyond acute medical treatment and frequently involve assistance with activities of daily living (ADLs), such as bathing, dressing, using the toilet, transferring, managing incontinence, and feeding oneself.
Statistics indicate that nearly 70% of individuals who reach the age of 65 will require long-term care at some point in their lives, with 20% needing it for five years or more. Women face a higher likelihood of requiring care, being twice as likely as men to do so. Despite these statistics, studies suggest that many Americans underestimate their potential need for LTC.
Levels of Long-Term Care.
Long-term care (LTC) encompasses different levels of care, including skilled nursing, intermediate care, and custodial care. Custodial care, which constitutes the majority of LTC, involves providing physical assistance with activities of daily living (ADLs). This type of care is typically administered by unskilled family members or friends. In fact, an overwhelming 70% of all LTC is provided by unpaid family caregivers, with the majority being women who dedicate an average of 20 hours per week to caregiving duties.
Long-Term Care Settings.
Long-term care settings offer various alternatives to traditional nursing homes, with options that have expanded over time. These alternatives include home-based health care, adult day care, assisted living communities, as well as traditional nursing homes and hospice care.
The Cost of LTC.
In 2021 the US Average cost for Long Term Care:
Nursing Home: $7,908/month for a semi-private room. $9,304/month for a private room.
Assisted Living: $4,500/month
Home Care: $26/hour
Adult Day Care: $78/day.
How to Pay for It.
Options for financing LTC include:
1. Self-funding: This approach involves drawing from personal savings or investments to cover LTC expenses. Given that the annual cost for private fully skilled nursing home care can soar to $108,408, individuals contemplating this route must amass a substantial nest egg. At Incline Financial Planning we recommend that clients aim to safely withdraw 5% annually from their portfolio. By quick calculations, this would necessitate having over $2 million in investments to adequately self-insure for LTC needs.
2. Long-Term Care Insurance (LTCI): LTCI policies offer another avenue for covering LTC expenses. These policies come in various forms, with factors such as benefit amounts, deductibles, and additional riders influencing premiums. For instance, a 50-year-old male considering an LTCI policy today might face an annual premium of $2,000. However, the decision to opt for LTCI hinges on whether the potential benefits outweigh the premiums, especially considering that one may never require extended LTC or collect any benefits. In such cases, individuals may lean towards self-insuring. If the $2,000 contribution is invested with a 7% compounded annual return, by age 75, the individual could accumulate $133,353. With the projected annual cost of LTC at $135,454 when turning 75, this would allow the individual to self-insure for a year's worth of hypothetical LTC care.
3. Alternative Funding Avenues: Other options for financing LTC include viatical settlements from life insurance, annuity income (including Social Security benefits), and selling one's residence.
4. Medicaid: Medicaid serves as a last resort for financing LTC, available once all other financial resources have been exhausted. However, based on personal experiences, Medicaid-funded LTC facilities may not offer ideal environments for spending one's final days.
While LTC may be a prudent choice for certain individuals, it undeniably comes with a hefty price tag. However, we firmly believe that for most people, planning for LTC expenses should be an integral part of their financial strategy. It's wise to start saving early and diligently to build a nest egg that can serve as a buffer for potential LTC costs. The age-old adage of "Save more!" rings true in this context.
Navigating the complexities of LTC planning can be daunting, but we're here to help. If you have any questions or would like us to conduct an analysis to determine whether LTC insurance is the right choice for you, or if you'll have sufficient funds to self-insure, don't hesitate to reach out. We're pleased to offer you a complimentary financial plan that includes LTC planning. Remember, personal finance is just that—personal. What works for your neighbor may not necessarily apply to your unique situation.
