Pros, Cons, Alternatives & Timing
Most people don’t like to think about needing help with dressing, bathing, or memory issues down the road. But the cost of long-term care is one of the biggest “wild cards” in retirement.
Recent surveys show the national median cost of a private nursing home room is now well over $120,000 per year (it’s more than double that in some South Bay facilities!) and assisted living and home-care costs continue to climb as well. At the same time, Medicaid (Medi-Cal in California) is the primary payer for nursing home care—but only after you’ve met strict income and asset limits, and often with limited choice of facilities.
That’s where long-term care (“LTC”) insurance and related strategies come in.
PROS OF TRADITIONAL LONG-TERM CARE INSURANCE
Traditional LTC insurance is a stand-alone policy you pay for, usually every year, that will help cover certain types of long-term care if you need it. Some of the potential advantages:
- Help with incredibly high care costs
If you need help at home, assisted living, or nursing home care, a policy can contribute thousands of dollars per month toward those bills, reducing the chance that your elder care wipes out a lifetime of savings.
- You set your own level of coverage
Instead of being limited to what Medi-Cal will pay for (and which facilities will accept it), you choose:
- Daily or monthly benefit amount
- Maximum benefit period
- Inflation protection
That can give you more control over where and how you receive care.
- Preserves your savings for you
With insurance paying a portion of the costs, you’re less likely to be forced into liquidating investments or selling property at the wrong time, just to pay caregivers.
- Protects your family’s inheritance
If you don’t have insurance, long-term care is typically paid from your assets first. LTC coverage can help preserve more of your estate for children and grandchildren rather than diverting it to the nursing home.
CONS (AND REAL-WORLD TRADEOFFS) OF TRADITIONAL LTC INSURANCE
Traditional LTC insurance is not perfect, and it’s not for everyone. Some key drawbacks:
- Premiums are high – and can go higher
Premiums for meaningful coverage can be substantial, especially if you apply later in life. Existing policyholders have also seen rate increases over the years, which can make coverage harder to maintain on a fixed income.
- You may pay for decades before you need it
If you buy in your 50s, you could be paying premiums for 20–30 years before you ever need care. Some people never use their benefits at all – the classic “use it or lose it.”
- Waiting too long can shut the door
If you wait until your late 60s or 70s to apply, premiums are higher, and you run a real risk of being declined because of health issues. Many companies tighten their medical underwriting as you age, or no longer offer a policy after you’ve reached a certain age.
In short:
- Buy too early, and you may pay for a very long time.
- Wait too long and you might pay more or be uninsurable.
OTHER OPTIONS: LIFE INSURANCE & ANNUITY-BASED LONG-TERM CARE
Because of these tradeoffs, many insurers now offer “hybrid” or “linked-benefit” policies that combine LTC benefits with life insurance or an annuity.
These can work roughly as follows:
Life insurance with LTC benefits.
- A permanent life policy (or sometimes term) can include a rider that lets you use part of the death benefit to pay for LTC costs while you’re alive. If you never need care, your family still receives the death benefit (often reduced by any LTC that was used).
Annuities with LTC benefits.
Annuities designed for LTC may give you:
- A fixed interest rate or market-linked growth on your “rainy day” money, often with tax-deferred growth, and
- A built-in pool of long-term care benefits that can multiply your premium dollars if you need qualifying care.
Potential advantages of these hybrids:
- You’re not as worried about “use it or lose it.” If you don’t need care, your beneficiaries may still receive a life insurance benefit, or you still have your annuity value.
- Benefits can be income-tax-free when used for qualified long-term care expenses under current law.
- You can reposition existing savings (CDs, cash value life insurance, old annuities) into something that both grows and provides LTC protection.
These products are complex and vary widely, so it’s important to work with a specialist who can explain all the moving parts—and coordinate them with your estate plan.
WHEN SHOULD YOU MAKE YOUR DECISION?
The uncomfortable truth: the best time to seriously look at LTC protection is before you feel you need it. Probably right now.
Industry data AARP cites shows that waiting from age 55 to 65 can increase the annual premium for the same policy by roughly 50% for healthy applicants. And every year you wait, you also run the risk that a new diagnosis (heart issues, diabetes, mobility problems, memory concerns, cancer history, etc.) will either:
- Make coverage more expensive, or
- Disqualify you altogether.
WHAT SHOULD YOU DO NEXT?
Long-term care planning isn’t “one size fits all.” It depends on:
- Your age and health
- Your income and savings
- Whether you want to protect an inheritance
- Your feelings about paying premiums vs. “self-insuring”
- Whether your investments may be sufficient to self-insure you, factoring in your projected retirement income needs
OUR RECOMMENDATION:
- Talk with a qualified long-term care insurance specialist. Ideally, this is someone who works with both traditional and hybrid policies and can objectively compare:
- Traditional LTC insurance
- Life/LTC combination policies
- Annuity/LTC solutions
- Educate yourself with trustworthy resources.
A few good consumer-oriented resources you may find helpful include:
- AARP: “Understanding Long-Term Care Insurance”
- AARP: “When to Buy Long-Term Care Insurance for Yourself”
- National Association of Insurance Commissioners (NAIC): “A Shopper’s Guide to Long-Term Care Insurance” (free booklet)
- Coordinate the insurance with your estate plan.
If you’re a client of ours, let us know of your purchase of LTC insurance or an annuity, so we can check that its ownership and beneficiaries are properly coordinated with your estate plan.
FINAL THOUGHT
Whether you ultimately buy traditional LTC insurance, choose a hybrid policy, or decide to self-insure, doing nothing is usually the worst plan. A thoughtful long-term care strategy can help you:
- Preserve your independence and dignity,
- Avoid burdening your family, and
- Protect the legacy you hope to leave to your children and grandchildren.
