What You Need to Know About Long-Term Care Costs

Long-term care planning is an indispensable aspect of retirement planning. Current analysis suggests seniors turning 65 today have a 70% chance of requiring long-term care services at some point in the future. Only about a third of people turning 65 will not require long-term care, and an estimated 20 percent may need care for up to five years or longer.

Today’s retirement savers and current retirees should have a long-term care plan because the odds are you and/or your spouse will need it at some point.

There are ways to mitigate long-term care costs beyond simply draining your retirement savings accounts. In addition to specialized long-term care insurance plans, there are a variety of life insurance policy riders and annuities that offer added long-term care protection.  

Life Insurance Long-Term Care Riders

Long-term care riders can be added to many traditional life insurance policies, allowing the policyholder to access a portion of the death benefit to cover the cost of long-term care. These types of policies can help shield a retirement saver’s other retirement accounts while still preserving the portion of the death benefit that isn’t fully used to cover the cost of long-term care.

Annuities With Long-Term Care Benefits

Retirees have access to a diverse variety of annuity options, many of which may play a significant role in your retirement plan. Long-term care (LTC) annuities and long-term care riders are both potential long-term care savings tools for people nearing or in retirement.

Retirees can make a lump-sum payment into an LTC annuity and draw a regular income stream like a standard annuity or, if the holder does require long-term care in the future, can receive significantly larger payouts to cover eligible costs.

Adding long-term care riders to traditional annuities may offer enhanced flexibility, though it typically increases the annuity's cost. When compared to buying a separate long-term care insurance policy, an annuity with an LTC rider might still be a more cost-effective choice for coverage, though they may provide less comprehensive protection.

LTC riders may only be activated when the annuitant has a diagnosable cognitive impairment or can no longer perform key activities of daily living.

Dedicated Long-Term Care Insurance

Dedicated long-term care insurance policies can be used to cover the cost of different types of long-term care, including in-home care or a long-term care facility. The benefits trigger when the insured can no longer perform a set number of activities of daily living or has a diagnosed cognitive impairment.

Like other policies, long-term care insurance offers adjustable coverage lengths, care settings, daily benefit amounts and inflation protection. Long-term care insurance can be expensive, especially if a policy is purchased later in retirement.  

LTC insurance has the added benefit of not affecting separate health insurance policies, annuities or life insurance policies since it doesn’t require tapping into those other assets.

Do Medigap and Medicare Advantage Plans Cover Long-Term Care?

Both insurance options can help supplement long-term care funding but neither is a replacement for long-term care insurance or life insurance or annuities with long-term care riders.

Medigap can offset deductibles, copays and coinsurance related to certain long-term care costs.

Medicare Advantage Special Needs Plans (SNPs), like an Institutional Special Needs Plan (I-SNP), won’t cover the actual cost of long-term care but would cover added medical services while a person is in a long-term care facility, like dental, vision and hearing. This can provide better healthcare quality and access and help control the individual or family’s other medical costs. 



Learn About Your Options for Funding Long-Term Care With the Help of a Phoenix Financial Advisor

Many retirement savers and retirees worry about the increasing cost of long-term care, especially at the level and quality they would prefer for themselves or a loved one. Thankfully, there are many financial and insurance tools to help people prepare for those expenses. You can learn more about your options and how they might fit into your overarching retirement planning strategy by calling Fullerton Financial Planning at (623) 974-0300.