People are living longer but this also means healthcare costs are rising. An insurance policy can help them afford it
The lifespan of Americans is longer today than at any point in history. The average age of 80 is often surpassed as people reach their 90s and beyond (the number of centenarians is also on the rise).
This is good news made better by the fact that typical age-related diseases are taking longer to develop and fewer people are dying of major diseases. Where a person lives could even hasten or delay the onset of ill-health in their later years; a USA Today report gives a rundown on how every state measures up for longevity.
Ultimately, temporary/permanent disabilities or illnesses such as dementia, heart problems, or diabetes will set in for most people at some point—making future long-term medical care a strong possibility. Here’s some of what you need to know about long-term care and insurance, and why preparing in 2019 could be more important than ever.
Defining long-term care
Long-term care generally refers to custodial care rather than traditional medical care in a hospital. The National Institute on Aging defines it as any service which helps a senior live safely and independently when they can’t, either temporarily or permanently, perform Activities of Daily Living (ADL) on their own.
The six basic ADLs are eating, getting dressed, bathing, transferring from one position to another, using the bathroom, and continence. The degree to which each or a combination of them require assistance dictates what level of long-term care insurance an individual requires. This is also dictated by the location of the caregiving, such as in the home or a nursing home/assisted living facility.
Estimating the cost of long-term care
The latest available data from the U.S. Department of Health and Human Services highlighted that:
- Around 52 percent of Americans turning 65 will require some form of long-term care due to a disability (likely for less than two years)
- 1 in 7 will have a disability requiring care for more than five years
- Someone turning 65 in 2016 will incur $138,000 in future long-term care costs which could be financed by setting aside just over half that amount today
- Roughly 1 in 6 will spend at least $100,000 out-of-pocket for future long-term care
People of all income brackets should be considering long-term care costs
According to some studies, even middle-income Americans who are currently financially comfortable won’t be able to afford long-term care a decade from now. The estimated annual cost of assisted living plus out-of-pocket medical expenses will reach $62,000 for most in that income bracket.
When we combine this with the fact that the middle-income class is rapidly shrinking (placing more people into the lower-income bracket now and probably for the future), it means a great many Americans will struggle to afford the long-term care they’re likely to require.
This compilation of statistics cautions even very high income, high-net-worth individuals against presuming they can afford long-term care, given inflation. It seems that regardless of one’s income, insurance today could be a valuable aid tomorrow.
How life insurance policies assist with long-term care
There are dedicated long-term care policies, but a life insurance policy can also help you pay for long-term care in several ways:
- Combination products – This type of policy combines traditional life insurance with long-term care coverage (more on that below). Combining the two is a relatively recent practice, but it’s proving popular with customers who feel that long-term care insurance by itself may never be necessary. Under this kind of policy, the amount of long-term care benefit is typically calculated as a percentage of the life-insurance benefit. The average cost of a single-premium combination policy is $75,000, sometimes paid in one lump sum or by a few large annual premiums.
- Accelerated death benefits – You may qualify to receive a cash advance on your life insurance policy’s death benefit if you are diagnosed as terminally ill or with a life-threatening condition. Other qualifiers require long-term care services for an extended time, being incapable of performing ADLs, or being permanently confined to a nursing home. The monthly amount a policy holder could pay for nursing-home care is usually around 2 percent of the life insurance’s face value.
- Life settlements – Men ages 70 and over and women ages 74 and over can choose to sell their life insurance at its present price to generate funds. This process doesn’t require any health screenings but has the drawbacks of being taxable and providing little to no death benefit for beneficiaries.
- Viatical settlements – This is only an option for the terminally ill. Policy holders can sell their life insurance to a third party and put that money toward the costs of long-term care. The third party becomes the new beneficiary and pays the policy holder a percentage of their death benefit which is tax-free.
The percentage varies based on life expectancy (80 percent for 1-6 months, 70 percent for 6-12 months, 65 percent for 12-18 months, 60 percent for 18-24 months, and 50 percent for more than 24 months).
A further option to consider for long-term care
The American Association for Long-Term Care Insurance published figures on how many Americans had taken out a long-term care (LTC) insurance policy either as a standalone or a complement to their existing life insurance. 350,000 Americans chose an LTC policy in 2018 at an average annual premium of:
- $2,050 for a male aged 55
- $2,700 for a female of the same age
- $3,050 for an equivalent couple
A longer, healthier life is now more attainable than ever, but it’s smart to put the financial provisions in place to cover the health are necessary to enjoy it. Contact us below for more advice on making life insurance choices for a more secure future.
At NICRIS Insurance, our experienced team reviews every client’s personal circumstances to find the best deal possible. NICRIS Insurance provides a free, personalized review or you can connect with us by dropping us a line!