Long Term Care Insurance and Alternatives

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Health care costs remain one of the biggest worries in retirement, rightfully so, since, according to one study, two thirds of people who file bankruptcy cited medical issues as the cause.

Unfortunately, regular health insurance does not cover long-term care.

AARP says 50 percent of people 65 years old will need long-term care insurance “one day.”

Is this a solution?

One solution for some is long-term care insurance, which covers people with chronic medical conditions or disabilities, such as Alzheimer’s disease and other forms of dementia. AARP says 50 percent of people 65 years old will need long-term care insurance “one day.” The Alzheimer’s Association said 6.2 million Americans 65 and older are living with dementia.

The Center for Retirement Research, meanwhile, says one in five 65-year-olds will die without using any long-term care and another one in five will require only minimum care. A strong indicator of how much assistance someone will require is whether they are healthy in their late 60s, the center’s study says.

For some, the answer can be long-term care insurance. But long-term care insurance can be expensive, and in the past the cost increases have been unpredictable.

So what to do? Here are the scenarios:

Long-term care insurance

 Long-term care insurance covers people with chronic medical conditions or disabilities

The younger and healthier you are the lower the cost. Premiums vary by age, gender and the type of plan. On average a policy for a single 55-year-old man will be $950 a year for a $165,000 policy: $1,500 for a 550-year-old woman. A 65-year-old single man will pay $1,700 per year; $2,700 for a single woman the same age. According to AARP, a couple 65 years will pay about $3,700 a year for a long-term care policy.

The insurance covers services provided by nursing homes, assisted living facilities, in-home care providers and adult day care centers. Most experts suggest you get policies when you are still in your mid-50s.

Most policies cover care for one year of care, but insurance can be purchased for up to 5 years of care.

 Asset-based long-term care

 Eric Bond, wealth advisor with Bond Wealth Management, says he recommends asset based long term care. You’re buying permanent life insurance or an annuity, and it covers your long-term care costs, but it usually requires that the premiums are paid up-front.

 “You invest like $100,000 and it’s a one-time investment,” he says. “It depends on age, and it depends whether you’re male or female, but the $100,000–let’s say–will get you $400,000 in long-term care.”

“Now, it’s not a growth engine, meaning it’s not going to grow like the S&P 500,” he warns. “It’s meant to do one thing – protect.  Now, what happens after 10 years you say ‘you know what, I don’t want it.’ You can get your money back, all $100,000. And what happens if you die, and you never use it? Well, your heirs get $100,000 back upon death. Well, what happens if the client put in $100,000, then only uses $50,000, and then they die? The client’s heirs get $50,000 back.”

Bond says he is fortunate in that most of his clients have the money to put into long term care. “And I will say, I’m the biggest proponent of long-term care.”

Accelerated death benefit rider

 Craig Ferrantino, founder and president of Craig James Financial Services in Melville, New York, says long-term care insurance is guaranteed renewable, but the insurance companies can raise the rates or reduce benefits.

He prefers the death benefit rider, which is added to your whole life policy. A policy holder can receive cash advances against the policy that will cover the cost of a serious or terminal illness. The death benefit is decreased by the amount withdrawn.

“Whereas if I have homeowners’ insurance, and Mike and I never get hit by lightning or never have a storm, then I’m still putting $2,000 a year into naught,” says Ferrantino. “In the case of whole life, however, you can cash in or have a benefit that goes to your heirs if you die.”

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Rodney A. Brooks writes about retirement and personal finance issues. His column currently runs in U.S. News & World Report. He has written columns on retirement for The Washington Post and USA TODAY. He has also written for National Geographic, Next Avenue and Black Enterprise magazine. He retired as Deputy Managing Editor/Personal Finance and retirement columnist for USA TODAY in 2015.