Among the many ways of paying for long-term care, life insurance and annuities have been growing in popularity.
In its original form, life...
When it comes to preparing for retirement, most consumers have only a vague idea about planning for potential long-term care expenses. Yet, well over half of Americans 65 or older will eventually require some form of long-term care.
There are multiple ways to pay for long-term care. However, the potentially enormous costs could quickly exhaust one's assets. An attractive alternative for managing this considerable risk could be long-term care insurance (LTCI).
This type of insurance pays for some or all costs of long-term care. It can cover care in a variety of settings:
LTCI can sometimes be obtained through some employee or association benefit programs. Also, some states are offering LTCI coverage. For example, in 2025, the state of Washington will provide up to $36,500 per lifetime for qualified state residents. Program funding comes from a 0.58% premium assessment on all employee wages in the state. Residents who are self-employed or already have LTCI insurance can opt out.
Most LTCI policies are purchased by individuals or couples directly from companies offering these products. Yet, even though LTCI can reduce a significant financial risk, many people perceive this form of insurance as too expensive.
Below are current average annual rates for a 55-year-old person signing up for a $165,000 benefit:
|No inflation||1% inflation||2% inflation||3% inflation||
The inflation options allow the policy benefits to grow by a set percent per year. As a consequence, the annual premium goes up.
While the no inflation option seems more affordable, the benefit may be woefully inadequate when needed for long-term care. The U.S. inflation rate hit a 13 year high in July 2021 at 5.4% after years of rates around 2%. While economists expect rates to decline, adding even a modest inflation factor to an LTCI policy can put premiums out of reach for many consumers.
Waiting to take out an LTCI policy can increase the cost even more. For example, the American Association for Long-Term Care Insurance estimates for a 55-year-old person who delays taking out an LTCI policy until age 65, the annual premium increases 49%.
For those who can afford LTCI, the purchase decision is complicated due to the complexity of the product. Since there are numerous possible long-term care situations, many different options can come into play for any given insurance policy. Therefore, consumers need to be aware of these options and analyze them carefully to ensure they obtain a policy providing the best fit.
Here are some guidelines for those considering LTCI.
Long-term care insurance can provide a great way to reduce financial risk. However, complex product alternatives require a thorough analysis so the consumer can make the best choice.
Looking for more on long-term care insurance? Check out our post, Do You Need Long-Term Care Insurance?
Or, learn more about additional options to pay for long-term care. Download our eBook, "Planning and Paying for Long-Term Care: What Are My Options?"
The U.S. Department of Health and Human Services estimated in 2020 that 50-70% of those now turning 65 will eventually need some level of long-term care. Yet,...