Long term care is the medical and social services term for helping people who develop disabilities or chronic care needs. Services may be brief with full recovery, or they can continue for years. Most long term care is by definition custodial care which is nonmedical assistance with activities of daily living such as walking, bathing, dressing, eating or using the toilet.
Care may be required due to physical impairment or cognitive impairment. The effects of Alzheimer’s, strokes, diabetes, auto accidents, sporting accidents and dementia commonly trigger the need for long term care services.
Long term care can be received at home, in an assisted living facility or skilled nursing facility.
As we age, it becomes more likely we will need long term care services. The U.S. Department of Health and Human Services reports that 70% of people turning age 65 can expect to use some form of long term care during their lives. The risk is also significant for working age adults as 42% of the 13 million people receiving long term care services are between the ages of 18 and 64.
By gender, women need care for 3.7 years while men average 2.2 years of long term care. Consider that one-third of today’s 65 year olds may never need long term care services, but 20 percent will need it for longer than 5 years.
The cost of long term care depends on the type of care you need and where you live. Currently the national median cost is $92,400 per year for a private room in a nursing home. A home health aide providing 44 hours of care per week will cost you $46,300 per year.
Use our interactive map to compare costs across the country:
$277,134 risk 2016 ($92,378 annual cost of care in 2016 x 3 years of care)
$372,440 risk 2026 ($124,148 projected annual cost in 2026 x 3 years of care)
$500,535 risk 2036 ($166,845 projected annual cost in 2036 x 3 years of care)
Long-term care insurance is designed to pay for long term services and support, including personal and custodial care in a variety of settings such as your home, assisted living facility, adult day care facility or skilled nursing facility.
A long term care insurance policy reimburses you for assistance required with activities of daily living (such as walking, bathing, dressing, continence, toileting and eating), or directional reminding assistance required due to cognitive impairment from Alzheimer’s or dementia. You can select where you want to receive services and the maximum value of your long term care protection.
The cost of your long term care policy is based on:
If you have health issues you may not qualify to purchase long term care protection because most policies require medical underwriting. Poor health may limit the amount of coverage you can purchase or you may only be able to purchase a policy at a non-standard rate.
Hybrid long-term care plans are a variation on traditional long-term care (LTC) insurance and fall under two categories:
1) Life Insurance with a Long-Term Care Benefit
2) Annuities with a Long-Term Care Benefit
Long-term care hybrid products are also called linked benefit or asset based long-term care policies. These LTC hybrid products can offer several advantages:1
Guaranteed Benefits - They guarantee benefits will always be paid, in one form or another.
Guaranteed Premiums - Most policies guarantee that premiums will never change.
1035 Exchanges - Some asset based long-term care insurers permit 1035 exchanges. The tax advantage of utilizing a 1035 exchange is to defer the internal build up of gains associated with your existing annuity or cash value life insurance policy. 2
A life insurance policy with long-term care benefits works by accelerating the life insurance death benefit to pay for your long-term care. If you never need long-term care, your estate receives a tax-free death benefit.
A long-term care annuity functions like a fixed annuity, but it has a long-term care multiplier built into the policy. If you need long-term care, a part of the contract pays the long-term care benefit.
Long-term care benefits are calculated on the amount of coverage selected when the policy is purchased. For example, the insurance company offers an LTC payout of 200% or 300% of the total policy value. A policyholder with a $100,000 annuity who had selected a total benefit limit of 300% would have an extra $200,000 available for long-term care expenses, after the initial $100,000 policy value is used. If long-term care is never needed, the annuity value is paid to the beneficiary.
1The scenarios above are basic examples of how hybrid long-term care insurance works. Policies available will vary by state and coverage may differ depending on age, health, gender, premiums and benefits requested. For an accurate proposal, please contact us for an illustration specific to your situation.
2We do not offer tax or legal advice and strongly advise that you consult with your accountant or tax professional.
We do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. We encourage you to consult your own tax, legal and accounting advisors.