Medicare News and Healthcare Updates

Long-Term Care Insurance: Five Things to Consider Before Buying a Policy

by Alli Thomas

Feb 10, 2023

Why you may need long-term care insurance

If you’re approaching retirement, you’re probably aware that there’s a good chance you’ll someday need long-term care. The U.S. Department of Health and Human Services estimates that over 70% of adults that live to 65 will need long-term care of some kind. 

There are two key details about long-term care that everyone thinking about retirement needs to know:

Planning for long-term care costs is even more important if you’re married. If one spouse becomes ill or suffers severe cognitive impairment (such as Alzheimer’s disease) and must go into a nursing home or an assisted living facility, the healthy spouse may have to take out a reverse mortgage or go back to work to keep the financial burden of long-term care from eating up all of their retirement savings!

Buying a long-term care insurance policy is one of the most common solutions. These insurance policies aren’t cheap, however, so it’s important to have the right information before deciding. And because insurance companies take your health status into account, not everyone can buy long-term care insurance; people with a chronic medical condition, for example, are unlikely to find an insurance company willing to sell them a long-term care policy.

Read more: What are the Chances That You’ll Need Long-Term Care? 

Five things to consider before buying a long-term care insurance policy:

The Right Age to Buy a Long-Term Care Policy

According to the AARP, the average long-term policy care premium for a healthy 55-year-old couple runs about $2,100 a year. For a healthy 65-year-old couple, it’s about $3,700 a year.

While that’s a significant price difference, not paying that long-term care policy premium for a full decade means that by the time this couple reaches age 75, they will have spent $5,000 less if they bought at age 65 than 55.

Putting off buying a long-term care policy until age 65 may seem risky and you might be worried about developing a serious health problem before then that could prevent you from obtaining coverage. However, long-term care claims are far more likely to be filed by people over 70. Carefully consider your health history when making this decision. If you’re in good health in your 50s, you may be able to save money by hold off on buying a long-term care insurance policy until you’re older. If you’ve had health problems, it’s better to buy a policy sooner even though you’ll have to pay premiums for a longer time.

What You Need Your Long-Term Care Policy to Cover

The cost of long-term care has been rising every year and these increases are likely to continue for the foreseeable future. When evaluating long-term care policies, it is important to consider not only what type of coverage is included, but any limits such as a lifetime maximum that could cause you to exhaust your coverage too soon. Some policies may also have a maximum daily benefit, which could limit the type of long-term care you can afford by the time that you need it — you could find that even though you need care in a nursing home, the policy will pay just enough to cover in-home care.

Hybrid Long-Term Care Annuity

A hybrid long-term care annuity combines a deferred fixed annuity with a long-term care rider.

Hybrid policies have become more popular recently because the prices of standalone long-term care insurance premiums have increased dramatically while the number of insurance companies offering traditional long-term care policies has declined.

Hybrid long-term care annuities have benefits both owners and beneficiaries. Policy owners can take out money at any time. And if long-term care is never needed, the annuity may be left to beneficiaries without having to go through the probate process.

Health Savings Accounts (HSA)

A health savings account helps you save money to cover medical expenses — and saves you money on taxes in the process. The contributions you make to your HSA reduce your taxable income and earnings in the HSA grow tax-free. And when you take money from the HSA to pay for qualified medical expenses (including long-term care), those withdrawals are tax-free as well. These accounts are available for people a high deductible health insurance plan. The only catch is that annual contribution limits for HSAs are quite low.

Medicaid Asset Protection Trust (MAPT)

While Medicare does not cover long-term care, Medicaid does have a long-term care program called Medicaid for Nursing Homes. The catch is that there is a strict income and asset limit to be eligible, along with a five-year lookback period (30 months in California), so retirees would have to spend down their assets in advance.

The Medicaid Asset Protection Trust is a tool that allows retirees to meet those eligibility requirements without spending or giving away all of their money. However, because of the lookback period, this trust would have to be set up in advance to be able to use Medicaid as long-term care insurance.

Speak With a Financial Advisor About Your Options

Because long-term care is such a significant potential expense and long term care insurance is expensive and potentially hard to find, it’s important to be aware of all available coverage options, how each can help protect your retirement, and which one best matches for your retirement goals.

If you’re concerned about long-term care costs in retirement and don’t have a financial advisor to speak with, we can help. One of our experienced financial advisors can help you put together a retirement plan that helps manage long-term care expenses for you and your family. Get started today by requesting a complimentary, no-obligation conversation about your retirement plan.

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Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

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