Understanding the Changing Landscape of Long-Term Care Options
It often seems like the COVID-19 pandemic has impacted virtually every aspect of our lives and finances, and long-term care insurance (LTCI) is no exception. As nursing homes became the epicenter of COVID infections, more people began searching for ways to remain in their homes as they age, and they realized that long-term care insurance may help them do that.
The Benefits of Having Long-Term Care Insurance
An estimated 47% of men and 58% of women over age 65 will require some type of long-term care support in their lifetime.1 In 2020, the monthly median cost of having an in-home health aide was $4,576, which equates to $54,912 per year, a significant expense for many retirees.2
Fortunately, long-term care insurance can help cover the cost of extended care should an individual have an ongoing medical issue. Services often include assistance with daily living tasks such as dressing, bathing, eating and administering medications. Services can be provided in a range of locations, such as in the individual’s home, a nursing home or an assisted living facility.
Challenges in Obtaining Long-Term Care Insurance
It has always been somewhat challenging to find affordable long-term care insurance, as the cost of policies is typically based on:
- How old you are when you purchase the policy
- How healthy you are when you purchase the policy
- The maximum number of years of care the policy will cover
- The maximum amount per day the policy will cover
- Any optional coverage or benefits you add to the policy
However, the increased demand for long-term care coverage due to the COVID-19 pandemic is making it even more difficult to qualify for LTCI. Following are COVID-related requirements that many insurers have begun implementing.
- The requirement to complete in-person medical exams
- A more extensive list of pre-existing conditions that will disqualify an applicant
- Restrictions on individuals who live in areas with high COVID-19 transmission rates, or who travel frequently to certain countries with high infection rates
- Higher premiums and less coverage than older policies
An Emerging Solution: Hybrid Policies
A more recent alternative to traditional long-term care insurance is hybrid coverage. A hybrid insurance policy combines life and long-term care insurance coverage. These policies help pay for long-term care expenses, if needed. If long-term care is not needed, they provide a death benefit that can be passed on to heirs. Hybrid policies offer several benefits over traditional LTCI.
- Premiums will not increase – Unlike traditional LTCI policies, the cost of a hybrid policy is locked in on the initial purchase date and will not increase.
- No lifetime premium payments – Also unlike many LTCI policies, you are not required to make ongoing, annual payments on the policy for as long as you live. Once you have paid for the cost of the policy, you make no other payments.
- Estate planning benefits – When not used to cover the cost of long-term care, hybrid policies provide death benefits that are typically passed to heirs income tax-free. When long-term care coverage is needed, these policies help protect an individual’s nest egg so it can be passed along to family members.
At Creative Planning, we develop custom insurance strategies specifically designed to protect our clients’ assets and provide security to their families. If you are interested in learning more about long-term care insurance, or for any other financial matter, please contact us.