Financial Planning

Long-Term Care (LTC) not only requires logistical planning, but also careful cost consideration. In our last post, we detailed the specifics of who may need LTC and what kind, and now we’re digging into the cost of preparing yourselves for these types of substantial costs.

Based on information from the 2019 Genworth Cost of Care Survey¹, the average annual national cost of Long-Term Care is as follows:

Home Health Care:

• $22.50/hour for Homemaker Services (i.e., cooking, running errands, etc.)
• $23/hour for Non-Medicare Certified Home Health Aide Services (i.e., bathing, dressing, transferring, etc.)
• $4,385/month for Medicare Certified Home Health Aide Services (i.e., skilled care associated with a nurse visit in the home)

Assisted Living Facility:

• $3,819/month for a one bedroom facility

Nursing Home:

• $247/day for a semi-private room
• $280/day for a private room

Tips for Buying LTC Insurance:

• Generally, the younger an individual purchases a LTC policy, the cheaper the premiums will be.
• Look for policies with at least one year of nursing home or home health care coverage, not coverage limited to just skilled care.
• Avoid purchasing a policy with a “service day” elimination period where only days when services are actually provided count towards the elimination period.
• Make sure the policy covers Alzheimer’s disease.
• An inflation protection option (rider) should be available which either automatically increases the benefit level or gives the option to increase the benefit level without providing evidence of insurability.
• The policy should guarantee that the coverage cannot be canceled, non-renewed, or terminated because you get older or your health deteriorates.
• Get a comparison quote and have an LTC insurance specialist explain the differences in benefits and premiums between them. Avoid buying benefits you do not need.
• Research the company's experience in the market and their history of rate increases. Check the company's rating and avoid buying a policy just because it is the cheapest.
• Review the "Outline of Coverage" with a LTC insurance specialist to determine how the insurance company defines "facility" and what type of care is covered.

Tax Treatment

Most policies currently on the market meet the federal standards regarding beneficial tax treatment. Individuals who itemize their deductions and spend more than 7.5% of their adjusted gross income on medical costs may deduct their premiums up to a certain amount based on age. The maximum 2020 deduction amounts per person are:

• Age 40 or less, $430
• Age 41 through 50, $810
• Age 51 through 60, $1,630
• Age 61 through 70, $4,350
• Age 71 or older, $5,430

In addition, “C” Corporations that provide qualified LTC plans may deduct the full premiums paid as an ordinary business expense, including premiums for the employee’s spouse and dependents.

Self-employed individuals may deduct the cost of premiums without regard to the 7.5% floor, as the self-employed may now deduct from gross income 100% of amounts paid during the year for health insurance costs (including LTC insurance).

Hybrid LTC Insurance Products

Hybrid insurance products that combine LTC insurance with other forms of insurance are becoming increasingly more common. These products are attractive to individuals who are concerned they will pay LTC insurance premiums for years and never receive benefits. There are many ways to obtain LTC insurance through a hybrid product. One of the most common vehicles is a single premium life insurance/LTC policy. As an example, a policy may cost $100,000 upfront and provide up to $300,000 for long-term care with a $150,000 death benefit. The client’s $100,000 would be spent on long-term care needs first. If the original investment is drained, any additional LTC costs will reduce the death benefit.

This option may be beneficial for someone who has the need for both life insurance and LTC insurance and can afford to pay a large upfront cost. It is also potentially appealing because an LTC and life insurance hybrid product provides an individual’s heirs with a tax-free death benefit if the money is not used for LTC. Additionally, some companies offer annuities and disability policies with long-term care riders or options. Hybrid LTC policies may have more limited coverage than standard policies so the costs and coverage should be evaluated closely when comparing different vehicles. An insurance expert should also be consulted when weighing the risks and benefits of each product.

Long-Term Care Summary

Long-term care is a service that many people may need at some point in their lifetime. It is important to consider how one is prepared to pay for this service, especially with the rising costs of care. LTC insurance is one tool in the financial planning process that may allow an individual to protect his/her assets and relieve the burden of paying for care from their family.

Many individuals feel that if their net worth would allow them to pay for their coverage out-of-pocket that they need not consider an LTC insurance policy. However, even if that is the case, there are significant reasons to consider such a policy, such as peace of mind and potentially preserving the assets you would have used to pay for your care. You should speak with your insurance expert to deem how much and what kind of LTC insurance will best suit your future needs and concerns.

For more information, including a breakdown of average estimated LTC costs by state, please download our 2020 Long-Term Care Guide for all of the additional information that you need to know about long-term care planning.

Please consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation. The information in this article is not intended as legal or tax advice.

¹ https://pro.genworth.com/riiproweb/productinfo/pdf/282102.pdf (“Genworth Cost of Care Survey 2019.” Genworth Financial, Inc., October 2019.