We get asked a lot about long-term care insurance. It makes sense that this comes up so often. After all, the prospect of paying for nursing home care for many years and the damage that can do to your finances is scary. A few of the industry stats: the national average cost of a private nursing home room is $108,000 annually. It is likely higher in our area, particularly at the nicer facilities. Long-term care insurance premiums average $5,000 annually for a 55-year-old couple. We think that is probably low. We have seen annual premiums more than that for each spouse. These costs vary depending on a lot of factors, but this insurance is expensive, and premiums tend to go up over time.
Also, there is a high likelihood that you will need long-term care. The Center for Retirement Research at Boston College found 44% of men over age 65 and 58% of women of the same age require some form of long-term care. The odds of one spouse needing care are substantial. Further, these costs are not covered by Medicare.
The average woman requires long-term care for 3.4 years; the average man for 2.5 years, according to a Price Waterhouse study. However, the averages don’t capture the wide range of outcomes. A quarter of the time, the expected cost of long-term care is less than $26,000. Only five percent of the time do long-term care costs top $578,000. One percent of the time, costs exceed $949,000, the study found.
Clearly, there is a wide range of possibilities, and the appropriate course of action is dependent on your personal circumstances. Here are some potential approaches.
Do nothing. This is of course the easiest and cheapest in the short run. You effectively self-insure and would cover any future long-term care costs out of pocket. If there are no costs, then you come out ahead. This approach is most appropriate for those with at least $2 million in investments.
Buy long-term care insurance. We have seen clients use this insurance and it has saved them a lot of money, but premiums are a lot more expensive than they used to be.
Buy different insurance. You could buy life insurance that would reimburse your estate for any out-of-pocket long-term care costs. You could also purchase a hybrid policy that pays out upon your death but can be tapped for long-term care expenses during your life.
Gifting. You could put your assets into a trust or give them away so that when you need long-term care, you are effectively broke. Medicaid would then cover the cost of your care. There is a five-year lookback period on any gifting before you will be eligible for Medicaid. This approach obviously is fraught with lots of other issues including access to your money, trusting your heirs, giving up a quality long-term care facility, etc.
Last minute planning. There are strategies that can be employed to protect assets just before one needs long-term care. These can include prepaying burial expenses, converting assets to Medicaid exempt assets like home equity, and more sophisticated “gift and note planning” that requires the assistance of an elder law attorney.
There are many considerations and nuances to each of these approaches. If you would like to discuss your situation in more detail, give us a call any time.
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