When planning for retirement, long-term care can be an emotionally charged topic. Most people do not want to think about themselves or a spouse as ever being unable to live independently. However, given the daunting cost of assisted living and how quickly that cost continues to rise, long-term care insurance is an important topic when we think about protecting assets in retirement and wealth for the next generation.
Basic long-term care insurance covers nursing home and assisted living needs. This type of insurance often comes with a tough price tag to swallow. It can be very expensive, but so is the potential cost of care. Many times, people contemplate if they should skip the insurance and instead self-fund care if it is ever needed. They need to weigh out if spending so much on insurance that they may never need is worthwhile. Although for some, self-funding may be doable and advisable, for most it creates a potentially significant risk to your portfolio and ability to leave a legacy if that is your goal.
According to Genworth 2020 data, 10,000 Baby Boomers will turn 65 every day until 2030 and seven out of ten of those folks will require some type of long-term care in their lifetime. Although the cost of care varies across the country, Genworth calculates the average national monthly cost of a private room in a nursing home to be $8,821 in 2020. Typically, the average length of stay is 24-48 months but for cognitive illness, the length of stays can increase significantly.
The good news is that there are now alternatives to traditional long-term care insurance with more flexibility, making them much more attractive. For instance, a hybrid long-term care policy generally creates more outcome certainty than traditional long-term care policies as premium payments are guaranteed, the spouse or children will receive a death benefit if the long-term care feature is not used and the benefits are tax efficient.
Hybrid policies require an initial planned (single or multi-year) premium and offer a monthly care benefit that increases with inflation and importantly, a return of premium feature and a death benefit if the policy is not used for long-term care costs. Another option is a survivorship universal life policy with a long-term care rider. This type of policy requires structured and predetermined premium payments and offers the ability to surrender for cash value while you protect yourself with the long-term care rider, if needed, along with a highly leveraged death benefit. While traditional long-term care policies do not guarantee level premiums, both hybrid life/long-term care policies do, which can be an advantage.
In both examples above, the policies would require an application and approval process including a phone interview and access to medical records. Once the policies are in place, the insured would receive a claim if diagnosed with an eligible cognitive impairment or if the insured cannot perform at least two of the six Activities of Daily Living (ADLs) which include bathing, continence, dressing, eating, toileting and transferring without assistance.
Ancora’s Planning and Insurance teams are here to assist you in looking at options to protect yourself and your family against the possibility of long-term care needs. The best way to evaluate your needs is to run a financial planning study to assess your long-term care risks versus your wealth transfer goals. Please reach out to your relationship manager to initiate a discussion of what solutions may be best suited for you.