Around 70% of adults over the age of 65 will need long-term care (“LTC”) support during their lives, ranging from in-home health care to nursing home care. The cost of this care can be high; the average cost of nursing care in Maryland is $127,750 per year, and most long-term care is not covered by Medicare beyond 100 days. Fortunately, your financial advisor can help you prepare for this financial impact. For many, a long-term care insurance policy is a beneficial part of a solid financial plan, protecting savings and estate values from being depleted by expensive long-term care.
Here are four types of long-term care insurance to discuss with your financial advisor.
Traditional LTC Insurance
These traditional policies cover professional assistance with activities of daily living (“ADL”) in home, at a nursing home, or in an assisted living facility. LTC benefits are triggered when the insured is not able to perform two of the following ADLs: bathing, caring for incontinence, dressing, eating, getting on or off a toilet, and transferring in and out of a bed or chair. Benefits may also kick in if the insured is declared severely cognitively impaired by a doctor.
- Advantage: Traditional LTC policies generally cover a daily rate for a defined benefit period, such as $280 per day for 5 years, which can totally cover or largely offset the high costs of care.
- Disadvantage: These policies are “use it or lose it”; if the insured never requires LTC, the insured and their beneficiaries cannot recover any amount of the premium paid.
Hybrid Life Insurance With LTC Benefits
These policies have one benefit amount that is designed to primarily pay for LTC expenses and secondarily covers a death benefit to beneficiaries. Most hybrid policies have an extended LTC benefit that pays out after the benefit amount, allowing an additional 2-5 years of LTC coverage. These LTC benefits are usually triggered similarly to a traditional LTC policy.
- Advantage: If the insured never requires LTC, the benefit amount goes to the insured’s beneficiaries as a death benefit.
- Disadvantage: These policies are more expensive because they include LTC and Life Insurance. Often, they require payment of a large premium up front, which may be inaccessible to many people.
Life Insurance With Accelerated Death Benefits (“ADB”)
This feature of many life insurance policies allows the insured to tap into a portion of their death benefit while they are still living for limited-term medical care coverage (usually two years). After the insured person’s death, the remaining death benefit goes to their beneficiaries. Policies differ in how they distribute these funds: indemnity-based policies will pay out 2-4% of the death benefit each month and reimbursement policies will pay insured individuals back for medical costs up to the annual limit.
- Advantage: ADB policies allow insured persons to tap into a portion of the insurance they are already paying for (or have finished paying for) if faced with a terminal illness.
- Disadvantage: Insured individuals should keep in mind that most life insurance policies have strict qualifications for what triggers ADB, often requiring a terminal diagnosis, as opposed to LTC policies that trigger from needing ADL services regardless of diagnosis.
Deferred Annuity With LTC benefits
LTC annuities can provide extended LTC benefits after the income term has ended, with annuities typically offering 2-3 times the cash value amount in LTC benefits. LTC annuities typically require a large premium up front.
- Advantage: LTC annuities may be more accessible to people in poor health who are denied by traditional LTC carriers.
- Disadvantage: Keep in mind that these LTC annuities may not account for inflation, and the cost of the LTC benefit is usually deducted from the annuity’s earnings.
Your financial advisor and insurance professional can help you identify which type of policy will best protect you and your family from the financial strain of long-term care. This blog is part of a two part series on long-term care; our next blog will discuss key terms and coverage in long-term care policies.