The government projections for decades have been that by the time we reach age 65 that 70% of us will experience a long-term care event. What is an event? It could be several months of assistance required to recover from surgery or an auto accident. Or it could be supervision needed due to dementia that would last through end of life.
The odds are great. The cost of paid care is expensive. Having a plan for care is a critical component of financial security, especially in retirement years.
There are just three ways to fund long-term care expenses
One way is to self-fund using savings, income and/or liquidating assets to pay for care. Will this create tax issues? Change the family’s standard of living? Unravel financial obligations?
Another funding option is to qualify for Medicaid, which is the government assistance that pays for long-term care. There are three components to Medicaid qualification: 1) general which includes citizenship or qualified immigrant, 2) meet state income and asset levels and 3) need skilled nursing level of care.
The third way is to purchase long-term care insurance that pays for care and protects assets and income. And then the questions become when to buy and how much to buy.
When to buy is easy
The younger you are, the less costly premiums will be over the lifetime of the policy. That is if you are buying equivalent coverage. What does that mean? Well, if you want to offset 60% of the cost of a private room in a skilled nursing facility (SNF) when you are age 40 you would buy $213 per day or $6388 per month. Sixty percent of SNF costs usually covers a one-bedroom apartment in assisted living and five to six hours of home care per day. Here we are using the median nationwide cost of a private room in a nursing home in 2024 which is the latest cost figures we have. The median cost is $10,646 per month and 60% equates to $6388.
The cost of waiting
But if you wait until age 50 and want to buy equivalent coverage in 2034 using a 4% annual increase in the cost of care, you will need to buy $315 per day or $9455 per month.
And if you put off the buy decision until age 60 in 2044, you will need to buy $467 per day or $13,996 per month.
Now you are older and the cost of care venues has increased considerably. Take a look at the cost of waiting chart below. Yes, females cost more. But everyone knows that, right.
Years ago, carriers got smart about claims. Women use more benefits and carriers implemented gender-based premiums. That is because we live longer and use more benefits. Carriers now price to risk.
Our chart uses cost and coverage for individual standalone premiums. The benefit amount represents 60% of the cost of a private room in a SNF today, in 2034 and 2044 using a 4% annual increase in costs. The only added optional rider is 3% compound inflation. Premiums are based on standard underwriting rates. We have also used a four-year benefit period in calculating the annual premium.
| Age | Gender | Year | Monthly SNF Cost | Monthly LTC Benefit | Annual Premium |
|---|---|---|---|---|---|
| 40 | Male | 2024 | $10,646 | $6,388 | $2,609 |
| Female | $4,413 | ||||
| 50 | Male | 2034 | $15,759 | $9,455 | $4,606 |
| Female | $8,011 | ||||
| 60 | Male | 2044 | $23,327 | $13,996 | $8,732 |
| Female | $15,633 |
Most claims are filed between ages 80 and 85
About 60% of claims last longer than one year and the average duration of those claims is 4.3 years which is why we use a four-year benefit period. Premiums are waived on claim once the elimination period is completed.
Here are some things to consider or ask your crystal ball. Hopefully, you have an accurate one!
- When will you need care?
- How long will you need care?
- Who do you want to provide your care?
- How will you pay for formal care?
- Are you insurable now?
- If you put off the purchase decision, will you be insurable later?
- What would you do with the premium you would save if you put off buying now?
Most of us think of long-term care as an end-of-life issue when we are elderly. Consider that 43% of those receiving care today are working age adults between the ages of 18 and 64. The primary reason for their care is motor vehicle accidents followed by spinal injuries. The need for long-term care can develop at any time.
Considering the impact of each generation
We have long talked about the long-term care baby boomer tsunami approaching and the shortage of care venues and caregivers. No doubt we will see an increase in the cost of care because of impending demand and lack of supply. Baby boomers are just approaching age 80 when claims begin. Baby boomers born between 1946 and 1964 total 66.9 million or 19.7% of the population.
Right behind baby boomers are Generation Xers born between 1965 and 1980 and total 65.6 million or 19.3% of the population.
Then comes millennials, an even larger segment. Born between 1981 and 1996, millennials total 74.2 million and 21.8% of the population.
The point here is that long-term care will be an ongoing challenge for many years to come. And we all need a plan for care. Here are three questions to consider when designing a plan for care:
- If I need care, where would I want to receive care?
- If I need care, who would I want to provide care?
- If I need care, how will I pay for it?
How much to buy depends on affordability and financial goals. Our clients always define their premium budget. And we design coverage that is in concert with their budget and financial goals.
Some clients have plans to transfer wealth. Others just want to be able to afford care. We work to customize coverage to support these objectives.
Get started today
There is no time like the present to create your plan to pay for long-term care. Contact us to schedule an appointment and download our Guide To Long-Term Care Planning.
