Long-term care is custodial care that is not covered by normal health insurance, including Medicare.  The most common type is personal care to help with “activities of daily living”.  These activities include bathing, dressing, grooming, using the toilet, eating, and moving around.  

Long-term care can also include community services, such as meals, adult day care, and transportation services. 

Further, it can include care for serious ongoing health conditions or disabilities, such as a heart attack, stroke, or dementia.

According to LongTermCare.gov, for someone turning age 65 today they have almost a 70% chance of needing some type of long-term care services.  Women need care longer (3.7 years) than men (2.2 years).

How Can You Prepare for Long-Term Care Costs?

From a planning perspective, there are two broad methods to prepare for long-term care costs. 

The first is to self-insure by saving enough extra money to cover the cost of retirement PLUS afford the potential of a long-term care experience. 

The median cost for services ranges $53,678 to $105,850 per year.¹   Referencing the above statistic regarding duration of care; woman average 3.7 years of care and men average 2.2 years.

The second method of preparing for long-term care costs is the shift the risk, at least in part, to an insurance company.  In our next section, we will broadly discuss the types of insurance in the marketplace intended to support this need.

What Types of Options Are Available for Those Who Want Long-Term Care Insurance?

There are a variety of products on the market today.

The first is a stand-alone traditional long-term care policy.  Essentially, you are buying a pool of money that can be used for costs down the line.  These contracts only pay out if care is needed during your lifetime—meeting the definitions of the contract.

Another type of insurance that can pay for long-term care is a hybrid life insurance policy, with a chronic illness rider.  This means there can be a death benefit if you were to pass without needing care, but you spend the death benefit if you needed care during your lifetime. 

Yet another common form of hybrid contract is an annuity with a chronic illness rider.   The initial cash would be invested like a normal annuity, but there would be a long-term care benefit provided with the rider—if needed in your lifetime.

When Is the Right Time to Look at Insuring the Risk?

The typical age we see people create a strategy for long-term care is between the ages of 55 and 60.   Often this coincides with being done paying for college for kids.   That stage of life tends to be when long-term care planning comes into focus.

It should be noted that shifting risk to an insurance contract requires underwriting.  So, while age 55-60 is common, generally the sooner the better due to the potential underwriting risk.

Is Long-Term Care Insurance Appropriate for Everyone?

In some cases, those who have built up a significant amount of wealth can rely on their savings for any long-term care they may need. In this situation, they may not need an insurance policy. 

Sometimes people find themselves on the other end of the spectrum, where they simply do not have enough money to pay premiums for insurance.   In that instance, there may not be any other option than to self-insure. 

But for the average person who has a certain amount they can afford to live on during their retirement plus some excess, shifting the risk to an insurance carrier may provide an additional layer of security and protection.

Connect with Our Team

When you’re ready to learn more about how a comprehensive approach to money can better position you and your family, the Moxie team is here to help. Schedule a complimentary consultation today to start the conversation.

¹ “Most Retirees Need Long Term Care.  These Are the Best Ways to Pay for It”, CNBC, Aug 27, 2021.

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