Every week in March, we’ll post on how much insurance you may need. While this question can challenge and confuse even the most financially savvy individuals, planning ahead is the best way to provide the peace of mind and support your family needs. It allows you to stay confident and powerful over your future, regardless of what life brings.

Today we’re focusing on long-term care insurance. Long-term care is a topic few like to discuss but most of us will face. We all need a plan for long-term care to stay in control and ensure our wishes are carried out.

Who needs it?

Most of us will need long-term care services. 58% of women and 47% of men age 65 and older will require long-term care services at some point during their lifetimes.

Care may be necessary for a long time. While the average woman will need care for 2.5 years and man for 1.5 years, 14% of people will need care longer than 5 years.

These services can be expensive; 57.5% of 65-year-olds will spend less than $25,000 on long-term care, while 15.2% will spend more than $250,000. And this care is becoming more expensive: over the last 5 years, costs have risen an average of 3.8% every year, with costs rising 5.5% in 2017 alone [1].

What options are available?

Will Medicare cover these expenses? Medicare provides for medical care, such as a hospitalization, doctor’s visit, or medication. It won’t, however, cover the wide range of non-medical treatments aging individuals often require, such as assistance dressing, eating, transfer from bed to chair, or using the restroom. It also provides only 100 days of “skilled nursing care” per illness after a hospital stay lasting at least 3 days [2]. Additional care must be taken care of separately, either through assistance from family members and other loved ones or private nursing care.

What about Medicaid? For low income and net worth individuals, Medicaid will provide for some or all of the costs of their care. There are certain income and asset rules that vary by state. California’s state Medicaid program, Medi-Cal, covers individuals with income below $16,150 and couples below $22,715. There are also stringent asset limits: $2,000 for individuals and $3,000 for couples. Some assets (such as a primary residence, personal belongings, and life insurance proceeds) are exempt from the asset limit. Those trying to “spend down” their assets to qualify by gifting them to others must be aware that Medi-Cal applies a 5-year look back period. Any amount transferred will impose a waiting period before you can begin benefits [3].

Because of these restrictions, most mid-to-high income families should consider private insurance. In the long-term care insurance marketplace, the most common kind of policy is traditional insurance.  This kind of coverage requires that you pay regular monthly or annual premiums. There is a fixed monthly benefit that may also come with an inflation adjustment. If you don’t need the insurance, your benefit is lost at your passing. The premiums are also not guaranteed and may increase, sometimes significantly. In recent years, premiums on existing policies have jumped up significantly. This is to keep up with rising costs in the long-term care industry.

In addition, there is a newer type of insurance called hybrid insurance.  This provides both a death benefit, similar to life insurance, and the lifetime long-term care benefits. Unlike a Traditional policy, there is a payout to your family should you not require care. The premiums are also fixed, often with a one-time premium up front.

How much do I need?

Your need for long-term care insurance depends on a number of factors. First, do you have liquid assets available to provide for your care? The more you have in retirement savings, the less your need for insurance.

Do you have family members and other loved ones living close by and willing to help with care? This can be a significant issue for individuals without family members or other loved ones in the area. They may rely more heavily on paid care, increasing the costs. Many people, however, would also prefer not to be a burden on their family members and instead provide for their own care out-of-pocket.

Do you desire to leave a legacy, such as a family home, to your children and other loved ones? Without insurance, such assets may be sold to pay for your care.

[1] https://www.morningstar.com/articles/879494/75-mustknow-statistics-about-longterm-care-2018-ed.html

[2] https://www.medicare.gov/coverage/skilled-nursing-facility-snf-care

[3] https://www.nolo.com/legal-encyclopedia/when-californias-medi-cal-will-pay-nursing-home-assisted-living-home-health-care.html