Long Term Care: How it works and Why it's Important

It's no secret that people are living longer lives, thanks in great part to advances in medicine and medical practices. While the World Health Organization points out that a longer life expectancy brings many opportunities for individuals and their families, as well as for societies as a whole, these opportunities are contingent on health.

We all know that as people age, they are more likely to experience health problems. What many people fail to realize and plan for, though, is the tremendous price tag that comes with some of these health concerns.

Why is it important to plan for long-term care?

According to 2020 data from the Administration for Community Living, almost 70% of people age 65 and older will need long-term care support at some point during their lives. While it's easy to think, it'll never happen to me, the statistics imply otherwise.

Long-term care refers to assorted services that aren’t covered by normal health insurance, including help with the six "activities of daily living" or ADLs. These include eating, dressing, bathing, grooming, using the toilet, and moving around.

As costs continue to rise to meet the growing demand for health-related services for the elderly, there is an increasing need for aging adults to plan for their long-term care. It's also critical to keep in mind that Medicare does not cover most long-term care costs either. While Medicare does cover short nursing home stays or limited home health care during a period of rehab, custodial care is the financial responsibility of the individual. Unsurprisingly, it can get very expensive very quickly. In fact, according to long-term care insurance provider Genworth’s 2020 Cost of Care Survey, the median cost of care in a semiprivate nursing home room is a whopping $93,072 a year.

So, how can you make sure you're prepared in case of the worst? Long-term care insurance is one way.

How does long-term care insurance work?

Once you've decided to buy an LTC insurance policy, your insurer will likely ask to see medical records and may also request an interview. Your rate will depend on several factors, including your gender, age, current health, and marital status, in addition to the amount of coverage you choose.

Under most LTC policies, eligibility for benefits kicks in when you're unable to do at least two out of the six ADLs (mentioned above) on your own, or if you suffer from a cognitive impairment like Alzheimer's. Care is not limited to a nursing home or an assisted living facility. Many opt to receive care at their own home.

It's important to note that under most policies, there is an “elimination period,” meaning that you will have to pay for LTC services out of pocket for a certain amount of time before the insurer starts reimbursing you. Some insurers also offer shared care options for couples, where you can pool the total amount of coverage between the two of you.

Incorporate long-term care into your financial plan today.

While long-term care insurance is undoubtedly a significant expense, it's an important option to consider as you lay the groundwork for your financial plan — and your retirement plan in particular. 

The key to any great expense is proper planning. As I have worked with many of you already in designing a comprehensive financial plan, long-term care is a key aspect of the plan. You do have to ask yourself, “What can I put in place that will help me rest easily during the day and sleep comfortably at night without worry or concern?” Knowing that you have a long-term care plan in place can significantly help to ease your burden and bring you peace of mind.

A long-term care plan should provide five important benefits, each of which should be carefully considered when deciding on the type of healthcare you desire. They are independence, freedom, choice, dignity, and control over the type of healthcare you wish to have. Also be sure to keep in mind that the type of protection you choose is not only important for you, but also affects the ones you love. Ultimately, if you are not protected, the role of caregiver will fall on your loved ones by default, which can be both emotionally difficult and physically exhausting.

As your financial advisor, I'm here to listen to your concerns and find solutions to them. If you'd like to discuss incorporating long-term care costs into your financial blueprint, please don't hesitate to reach out.