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Long Term Care Planning
Life is unpredictable, but we all want the most from our retirement dollars. Planning for long-term care is an essential part of any comprehensive retirement plan.
Not everyone will choose to purchase long-term care insurance to cover the risks of needing care, but it should be an informed decision. We recommend a review with a long-term care specialist and your financial planner. Contact us for a consultation with our long-term care specialist.
Here is some information to get you started:
Long-term care: what it is and isn't
Long-term care includes a range of skilled professional and supportive services received for an extended period due to illness or injury.
Long-term care services are provided for assistance with activities of daily living (ADLs), such as bathing, dressing, toileting, continence, eating and transferring (as in from bed to chair).
Services can be provided:
- at home
- in an assisted living facility
- in a nursing home
One of the goals of long-term care planning is to allow you to stay at home for as long as possible.
Likelihood of needing care
It's estimated that over half of us will need some type of long-term care in our lifetime. That doesn't mean a nursing home stay is in everyone's future, but some period of dependency on others is common, whether provided at home or in a facility. Home care services are more likely, are needed sooner, and are often more desirable to the person needing care.
Options to pay for long-term care
There are three sources of funding for long-term care: personal funds, public funds, and insurance policies.
- Personal funds include your own and your family's resources—income and savings
- Public funds include MedicAid after spend-down to poverty level
- Insurance policies include customized personal and/or group coverage from private insurers
Reasons people buy long-term care insurance
People have many reasons to choose insurance to pay for long-term care costs. Here are some of the most common reasons:
- to remain financially independent
- to retain control and responsibility for their own care
- to spare family the financial and emotional burden of their care
- to preserve their estate for children, grandchildren and/or charity
How much care costs
Long-term care is expensive and costs keep rising. Here is some information on average cost of services from Genworth's 2008 Cost of Care Survey:
| Service/Average Cost | San Francisco | Oakland | National |
|---|---|---|---|
| Nursing home, private room, annual | $100,101 | $92,740 | $76,460 |
| Nursing home, semi-private room, annual | $77,485 | $73,828 | $68,408 |
| Assisted living, 1 bedroom, annual | $44,011 | $38,358 | $36,090 |
| Adult day care, annual | $19,100 | $25,314 | $15,236 |
| Home health aide, hourly | $34 | $47 | $29 |
How much insurance costs
Long-term care insurance pricing varies with age, health and benefits selected. You can design a policy to cover all or some of your daily expenses, for a limited or unlimited period, choose which types of services to cover (nursing home, assisted living, home care), etc.
Different carriers offer different features—it's important to work with a specialist who knows the products inside out.
Here are sample premiums for basic coverage that includes 100% home health care for reference.
| Annual Premium | Single/Partner Age 50 | Single/Partner Age 55 | Both Partners with Discount |
|---|---|---|---|
| Carrier 1 | $2,346 | $2,835 | $3,657 |
| Carrier 2 | $1,900 | $2,118 | $2,931 |
Insuring vs self-funding
Insuring for long-term care can save hundreds of thousands of dollars over self-funding, if care is needed for a significant time period. If care is needed full-time, premiums can easily be recovered within a year or less.
Here's a comparison for our sample single 55-year-old needing 3 years of care at age 80:
Benefits for business owners
Business owners can realize significant tax benefits from purchasing long-term care insurance.
While everyone can include a portion of long-term care insurance premiums in their annual medical expense tax deduction, business owners can deduct 100% of the premiums for themselves and their spouses (S-Corps, C-Corps, partnerships and self-employed).
Another intelligent option is to pay the entire premium amount before retirement—either through a 10-year-pay (where available) or a pay-to-age-65 policy. This lets you use your retirement income for living your dreams.
Here is an example of 10-pay premiums for our sample clients:
| Annual Premium | Single/Partner Age 50 | Single/Partner Age 55 | Both Partners with Discount |
|---|---|---|---|
| Carrier 1 | $7,038 | $7,597 | $10,331 |
| Carrier 2 | $5,568 | $5,466 | $7,969 |
Costs of waiting
The younger you purchase LTC insurance, the lower your costs.
Long-term care insurance must be purchased when you are in good health. Once you've had significant health issues, it's too late.
Premiums are lower at younger ages, and the total costs over time are lower as well. Not only do premiums on new policies rise with age, they rise with inflation. Purchasing early with a compound inflation protection locks in a good rate.