Long Term Care: An Important Piece of Family Risk Management

Ten thousand Americans turn 65 every day and many more of them will live into their 80s and beyond. Many will require daily assistance as they age, the cost of which can quickly drain resources that most people expect to both last their lifetime and include a healthy estate for heirs. Thus was born long-term care insurance. After witnessing clients struggle with the challenges of coping with their own aging or that of their parents, we’ve come to see long term care as an important part of family risk management.

Today, however, the market for long term care insurance is changing due to the rise in care costs and significant claims over the past several years. The results have limited the various carriers clients can work with and have caused premiums to rise—a trend we expect to continue for the foreseeable future. Despite the challenging market, the reasons to insure go beyond the desire to minimize financial risk and protect assets and legacy. Long term care insurance means not being dependent on the financial calculations of others when you’re most vulnerable.

Therefore, we want to share our current thinking about long term care coverage, the various benefits of adding it to your program, and more. Let’s first answer some important questions.

What sort of “care” are we talking about?
The U.S. government defines long term care as a “range of services and supports you may need to meet your personal care needs.” It’s typically not medical care, but rather assistance with everyday tasks like bathing, dressing, using the bathroom, moving around, eating or taking medications. Professional service providers in this realm may include in-home nurses and aides, adult day programs or long term care facilities.

Who ends up needing such care?
People who live alone are the likeliest candidates, increasingly as they age. With some couples, older women are more likely to need long term care, since they outlive their husbands by an average of about five years. Other likely candidates: people with disabilities, chronic conditions, and poor diet or exercise habits.

Am I (or a loved one) a candidate?
Quite possibly. Seventy percent of those turning 65 today will ultimately need long term care—and 20% will need it for longer than five years. Industry projections suggest that cost increases will continue to outpace inflation over the next two decades; facility care may cost as much as $400,000 per year by 2040. That is a sizable amount of money and unfortunately, Medicare does not cover long term care.

If long term care insurance—or the benefits it brings—seems like something that’s right for you or your family, you’ll need to talk with an insurance broker to understand the full range of options. We have seen some clients purchase policies for aging parents so it can minimize potential conflicts between siblings over their care. To give you some additional background, we will discuss a few ways to look at long term care below. Note that the benefit can be spent on whatever care is preferred (at home, in a nursing or assisted-living facility) or on care coordination.

Traditional long term care insurance
Only a few companies still offer traditional policies. With those policies, premiums are paid for life, but not at a guaranteed rate. (As many of our clients know, rates have been raised quickly and steeply in recent years.) Benefits are generally limited to $10,000 a month for up to five years. Keep in mind this can be a use-it-or-lose-it coverage—generally not always the best available option on the market.

Hybrid life/long term care programs
Upside: you or a loved one will ultimately see a return from the investment because there is a death benefit usually equal to the amount paid in premiums. Also, premiums are guaranteed and inflation-protection options are available. However, the downside: there are often limitations on the monthly amounts and number of years the policy will pay out.

Permanent life insurance
Since most long term care claims (unfortunately) end in someone’s passing, this workaround essentially allows people to reimburse either their family members or estate for associated costs.

Self-insurance
This involves setting aside money to invest, solely for long-term care. Often long term care programs can provide competitive returns if leveraged correctly. Upside: No premiums, and if the funds aren’t used they become part of the “insured” person’s estate. Downside: Investment gains may be taxed.

As insurance professionals, it is our responsibility to highlight and help our clients eliminate risks around some of the most challenging or sensitive topics. We are here to help guide you on the options best suited for you and your family.