Understanding Long-Term Care Coverage: Essential Insights for Planning

If you are in your 40s or 50s, ask yourself, “How would I or my loved ones pay for long-term care if my health deteriorated to the point that I was no longer able to take care of my daily needs?” Most people just assume their children will care for them or say they’ll simply hire a caregiver. Unfortunately, neither option is as simple—or ideal—as it may seem.

The reality is that 70% of people turning 65 will require long-term care at some point due to dementia, arthritis, cardiac issues, or any number of debilitating conditions.¹ If even one spouse or parent needs long-term care, the immense financial burden can force families to liquidate assets—home, stocks, or 401(k)—to cover the costs. And the emotional toll of caregiving for a spouse or family member can be overwhelming.

Yet, most people avoid thinking about these possibilities until too late, leaving themselves completely unprepared. To avoid limiting your options and burdening your loved ones, the key is to start your long-term planning now. And for many, a large part of that plan involves purchasing Long-Term Care insurance to protect their family from this extreme financial risk.

To give you some more insight into why so many people ultimately choose Long-Term Care insurance, in this blog, we’ll cover:

• The financial and emotional impact of long-term care and its expenses.
• The types of Long-Term Care insurance policies and their key features.
• How Long-Term Care insurance can protect your savings and support your family.

Understanding the Impact of Long-Term Care Assistance

Long-term care assistance comes with tremendous financial and emotional implications for families. Understanding what’s at stake is a key part of planning your future.

The Financial Reality

The uncomfortable truth is that long-term care comes with a staggering price tag. Based on current national averages, you would need:

• $60,569.60/year to pay for 40 hours of in-home help per week. ²
• $63,336.60/year to afford a one-bedroom assisted living facility. ²
• $116,654.76/year to pay for a private Medicare-certified nursing home room. ³

For most families, expenses like these would be daunting. But if you hope to avoid the cost of skilled care by relying on a family member, consider that those responsibilities can disrupt their careers and drain whatever savings they might have.

For example, studies show:

• 60% of caregivers experience employment changes, either taking leave or leaving work entirely. ⁴
• 46% reduce work hours, and 23% report being late to work repeatedly. ⁴
• 27% had to stop saving money, and 11% tapped into long-term savings like retirement accounts to cover caregiving costs. ⁵

The unfortunate reality is that far too many families never consider these pitfalls and end up having to burn through their income or savings to keep up with this enormous financial burden.

The Human Impact of Long-Term Care

Long-term care doesn’t just affect the individual in need—it profoundly impacts everyone around them. Family caregivers are often spouses or children who step in to provide custodial care and assist with activities of daily living (ADLs), such as bathing, dressing, or getting in and out of bed. Many might also have to perform complex medical tasks traditionally handled by nurses, like administering injections or managing feeding tubes. The average family caregiver provides care for 3.9 years, but nearly 30% of caregivers for those over 50 end up having to provide support for five years or longer. ⁴

For these individuals, the toll on their mental and physical health can be overwhelming:

• Nearly 40% of caregivers report high emotional stress, and over 20% experience physical strain. ⁶
• Around 41% reported feelings of depression ⁶
• Nearly 50% reported reduced quality of life ⁶

Caregiving can strain family relationships, especially when one partner takes on most of the responsibility. Around 40% of caregivers say the role has negatively impacted their relationship with their spouse. ⁶ And if caregivers feel they have no choice but to help, resentment and tension can build, further complicating an already stressful situation.

Uncomfortable Choices Ahead

To illustrate the financial and emotional implications, consider this scenario: An elderly couple with an annual income of $200,000 hires in-home help for $2,000 weekly. At this rate, their savings evaporate quickly, forcing them to explore other options:

1. Spend all their assets to qualify for Medicaid: Once their money runs out, Medicaid may help them. However, Medicaid support is limited, and coverage often depends on the specific illness and care needed.
2. Rely on family: While this might seem practical, it can drain both the couple’s and their children’s assets, strain relationships, and lead to emotional and financial stress for everyone involved.
3. Purchase Long-Term Care insurance: While not a universal solution, this option can significantly reduce the burden on the family, preserve savings, and ensure access to professional care when needed.

What Is Long-Term Care Insurance?

Long-Term Care insurance is a specialized type of coverage that helps pay for costs of care that arise when you can no longer perform essential activities of daily living (ADLs), such as bathing, dressing, or eating. It offers financial support for services provided in settings like a nursing home, assisted living facility, adult day care center, or even your own home.

Unlike traditional health care coverage or Medicare, which generally covers only short-term medical needs, Long-Term Care insurance is specifically designed to help with the extended care required due to aging, chronic illnesses, or a severe cognitive impairment like Alzheimer’s disease.

Long-Term Care insurance is available in different formats, including group policies offered through employers or individual policies that you can purchase independently.

The key benefit of these policies is being able to transfer much of the financial burden to an insurance company, allowing you to protect your savings and avoid placing the full responsibility of caregiving on your loved ones.

Types of Long-Term Care Insurance

When it comes to Long-Term Care insurance, there are three primary types of policies, each with its own distinct benefits and structures.

1. Traditional Long-Term Care (LTC) Insurance

Traditional Long-Term Care insurance is the most well-known option and provides comprehensive Long-Term Care coverage. This type of policy is ideal for those who are younger and planning ahead since premiums are spread over many years. Key features include:

• Customizable coverage: Choose the benefit amount, payout length, inflation protection, and waiting period.
• Lower annual premiums: Premiums are generally lower since they are typically purchased at a younger age and then paid annually over a lifetime.
• Health-based qualification: These policies require medical underwriting, making it easier to qualify if you’re younger and healthier.
• Tax benefits: Federal tax deductibility may be available, along with state-specific credits (e.g., a 20% tax credit in New York).
• Spousal discounts: Many insurers offer partner discounts for joint policies.

It’s important to understand that traditional policies typically have no cash value and can only be used for long-term care expenses. Traditional policies also often come with a lifetime maximum benefit, meaning there is a set cap on the total amount the insurer will pay out during your lifetime. This limit is typically determined when you select your policy and is influenced by the coverage and premiums you choose.

2. Hybrid LTC Policies

Hybrid policies combine life insurance with long-term care coverage. These policies allow you to access funds during your lifetime for long-term care or leave a death benefit to your beneficiaries if care is not needed. Key features include:

• Dual-purpose coverage: Provides a Life insurance death benefit while also allowing you to draw from it for long-term care expenses.
• Flexible payment structures: Premiums are often paid as a larger lump sum or over a limited period, such as 5–10 years.
• Guaranteed benefits: Whether used for long-term care or as a death benefit payout, someone will benefit from the policy.
• Refundable premiums: Some hybrid policies allow for refunds if the benefits are unused, offering peace of mind.

Hybrid policies are ideal for those who want long-term care protection without the risk of “losing” money if they never require care. While more expensive upfront, the guaranteed benefits and flexibility provide major perks.

3. Life Insurance with a Long-Term Care Rider

This option involves adding a Long-Term Care rider to a Life insurance policy. It allows the policyholder to use part of the death benefit to pay for long-term care services during their lifetime. Key features include:

• Advanced death benefit payments: The rider permits monthly withdrawals from the Life insurance benefit to cover long-term care expenses, if needed.
• Reduced payout: Funds used for long-term care decrease the eventual death benefit paid to beneficiaries. However, any remaining coverage will be paid upon the policy holder’s passing.
• Flexible premium options: Premiums can often be spread out over a lifetime, making it a long-term financial commitment.

This option is best for individuals who primarily need Life insurance but want the added flexibility of accessing funds for long-term care if necessary.

Long-Term Care Insurance: Financial and Emotional Benefits for Your Family

Incorporating Long-Term Care insurance into your retirement plan is one of the best ways to ensure you and your loved ones won’t be burdened with extreme financial and emotional difficulties. But time is of the essence if you want to be sufficiently covered should you need care.

The Value of Planning Ahead

The key to Long-Term Care insurance is getting covered early. The sweet spot for purchasing a Long-Term Care insurance policy is between the ages of 45 and 60 when premium rates are lower and health issues are less likely to disqualify you from being eligible. Waiting too long can mean higher premiums—or worse, becoming ineligible due to chronic health conditions.

Financial Benefits of Long-Term Care Insurance

There are many financial benefits to getting in early and securing Long-Term Care insurance while you’re still young:

• Helps pay for expensive care services: Your Long-Term Care policy covers most long-term care services such as in-home care, assisted living, or nursing homes.
• Protects your savings: You won’t need to deplete your nest egg or sell valuable assets to pay for long-term care.
• Maintains your lifestyle: Your income can continue to support a healthy spouse or your normal living expenses rather than being siphoned off to pay for long-term services.
• Keeps you off Medicaid: Avoid relying on government assistance with only limited coverage options, which is also becoming harder to secure.

Many families find that paying Long-Term Care premiums is far more cost-effective than paying out-of-pocket for care.

For example, a traditional Long-Term Care policy for a 45-year-old married couple living in New York might cost them about $278/month. Once they need the care, their policy would pay out around $6,000/month for 5 years (without inflation)—the typical length family members commit themselves to when taking on caregiving duties.

If this still seems expensive, consider that, from what I’ve witnessed, one year of out-of-pocket nursing home care can equal the cost of almost 20 years of premium payments.

Human Impact and Peace of Mind

One of the greatest benefits of Long-Term Care insurance is reducing the strain on your loved ones. Without it, families often face tough choices:

• Who will provide care, and when?
• How will caregiving duties fit around work and family obligations?
• What happens when the money runs out?

With a Long-Term Care insurance policy in place, families have a plan. There’s no need to argue over who will care for mom or dad—or to choose between caregiving and attending important events like a child’s graduation or a soccer game. The insurance ensures that funds are available so they can focus on spending quality time together rather than managing logistics and costs. Many children even pitch in to pay premiums for their parents when they realize it’s a better alternative to sacrificing their own savings or careers.

The Insurance Companies’ Commitment to Your Security

One of the greatest advantages of Long-Term Care insurance is its reliability. Once a policy is issued, insurers cannot cancel your coverage as long as you pay your premiums, ensuring your protection remains intact.

For traditional Long-Term Care policies, any premium increase must follow strict regulations and apply equally to all policyholders within the same series. This system, guided by the National Association of Insurance Commissioners, prevents arbitrary changes to your rates.

Policies like hybrids and Life insurance with Long-Term Care riders can go even further by offering guaranteed premiums that remain locked in, regardless of inflation or other economic factors. These policies also often include inflation protection, ensuring the value of your coverage keeps pace with rising long-term care costs.

And once you receive benefits, policies typically waive your premiums, meaning you no longer need to pay while receiving care.

A Policy That Grows With You

Long-Term Care insurance is an investment in your future, offering financial protection and preserving family harmony. By planning now, you can enjoy your retirement with confidence, knowing you’ve taken steps to secure your well-being and protect those you love.

If you’re interested in finding out more about your different options for Long-Term Care insurance, contact hsimon@hilbgroup.com.