The Importance of Proactive Long-Term Care Planning: Securing Your Financial Future

Why Early Planning for Long-Term Care is Essential

As life expectancy continues to rise, planning for long-term care has become a critical component of comprehensive financial planning. Statistics show that approximately 70% of people aged 65 and older will require some form of long-term care during their lives. The average duration of care is approximately three years, with women typically needing care for about 3.6 years and men averaging 2.5 years. Notably, about one in five adults will require care for more than five years. Qualifying for LTC Benefits is based on an Insured’s ability to independently perform two of the six Activities of Daily Living: Bathing, Dressing, Toileting, Transferring, Eating and Continence.

Early planning for long-term care provides several significant advantages:

• Financial Protection: A 70-year-old couple who incurs long-term care expenses sees their wealth decrease by an average of 21% over nine years. Proactive planning helps mitigate this substantial financial impact.
• More Favorable Rates: Securing long-term care insurance between ages 50 and 65 allows you to lock in lower premiums and ensure adequate coverage for future needs.
• Expanded Options: Starting early provides access to a wider range of insurance policies and investment strategies to fund your care.
• Reduced Family Burden: Proper planning alleviates the emotional and financial stress on family members who might otherwise become caregivers or bear the financial burden of your care.
• Care Preference Planning: Early consideration allows you to thoroughly evaluate whether you prefer aging in place with home care or transitioning to an assisted living or nursing facility.

Comprehensive Financial Planning for Long-Term Care

Integrating long-term care into your overall financial strategy creates a robust plan addressing all aspects of your financial life:

Risk Assessment

A thorough financial plan evaluates your personal risk factors for needing long-term care, including family health history and lifestyle factors. This personalized approach ensures your plan addresses your specific situation rather than relying on general solutions.

Asset Protection

Strategic financial planning helps structure your assets to shield them from the potentially devastating costs of long-term care while maintaining your quality of life and preserving your legacy for loved ones.

Income Planning

Your financial plan should account for potential long-term care costs within your retirement income strategy, ensuring sufficient funds for both daily living and potential care needs without depleting your resources prematurely.

Tax Considerations

Different long-term care funding options have various tax implications. Proper planning navigates these complexities, potentially saving you significant money while maximizing the efficiency of your care funding.

Current Cost Estimates for Long-Term Care

Understanding the potential financial impact of long-term care is crucial for effective planning. Below are the most current cost estimates, including specific data for our local counties in New Jersey and Pennsylvania where many of our clients reside.

The average lifetime cost of long-term care is estimated at around $172,000, but this figure can be much higher depending on the type and duration of care needed. A combination of home care, assisted living, and nursing home stays over several years can easily exceed $350,000.

Typical Length of Care by Condition

It’s important to note that these costs and durations can vary significantly depending on your location, the level of care required, and individual health factors.

Understanding Coverage: Private Health Insurance, Medicare, and Medicaid

Before exploring funding options, it’s essential to understand what traditional insurance programs do—and don’t—cover:

• Private Health Insurance: Most private health insurance plans provide very limited coverage for long-term care, typically covering medically necessary skilled nursing care or home health care for only a short period.
• Medicare: Despite being an essential health insurance program for seniors, Medicare provides very limited long-term care coverage:
  • Up to 100 days of skilled nursing care following a hospital stay of at least three days
  • Some home health care if you’re homebound and need skilled care
  • Does not cover custodial care or long-term care beyond these limits
• Medicaid: While Medicaid does cover long-term care services, eligibility is based on strict income and asset requirements:
  • Your income must be below a certain level, which varies by state
  • Your assets must be below a certain threshold (usually around $2,000 for an individual, excluding your home and car)
  • You must meet your state’s functional eligibility criteria for long-term care

Funding Options for Long-Term Care

Several strategies exist for funding long-term care, each with advantages and considerations:

• Stand-alone Long-Term Care Insurance
  • Specifically covers long-term care expenses
  • Offers flexibility to completely customize your policy based on your needs; including daily benefit coverage amounts, coverage period, inflation protection and benefit riders some of which are covered below
  • Higher premiums if purchased later in life
  • Premiums can rise over time (see Note: Below)
• Hybrid Policies
  • Combine life insurance or annuities with long-term care coverage
  • Provide a death benefit if long-term care isn’t needed
  • Offer more versatility and potential asset protection
  • Usually feature guaranteed premiums that won’t increase

Note: While the previous generation of LTC Policies from the early 2000’s have experienced policy premium increases due to inadequate evaluation of Underwriting Risk, the industry and regulators have taken steps to more properly set the policy premiums for this new generation of policies to attempt to significantly reduce the need for future increases.

• Self-Funding
  • Requires significant assets to ensure sustainability through potentially lengthy care needs
  • Provides maximum flexibility in care choices
  • Requires careful planning and asset management
  • Risks depleting assets that could otherwise be passed to heirs

Maximizing Long-Term Care Insurance Benefits

To get the most value from long-term care insurance, consider these critical strategies when selecting and maintaining your policy:

Inflation Protection

With healthcare costs rising annually, a policy without inflation protection essentially decreases in value over time. Experts recommend a minimum of 3% compound inflation protection to keep pace with increasing long-term care costs. 

Compound inflation protection, often referred to as the “8th wonder of the world,” provides significantly better coverage than simple inflation by applying interest to interest. This results in a more substantial increase in benefits over time, ensuring your coverage remains adequate as care costs continue to rise.

However, utilizing even simple rather than compound inflation can significantly reduce total premiums.

Shared Care Benefit Option

An effective strategy for couples is to consider a shared care benefit option. This allows spouses to share a joint maximum benefit pool, potentially doubling their available coverage while saving on premiums.

For example, two 55-year-old spouses could save $1,000 or more annually by opting for a shared care benefit, while still having access to a substantial benefit pool at age 85. This approach provides greater flexibility and can significantly extend available benefits if one spouse requires more care than the other.

Elimination Period Selection

The elimination period (similar to a deductible) is the time between when care begins and when the policy starts paying benefits. While longer elimination periods (90-100 days) result in lower premiums, carefully consider your ability to cover costs during this waiting period.

Some policies offer calendar-day elimination periods (counting all days from the start of care) versus service-day elimination periods (counting only days when services are received). Calendar-day options typically provide benefits sooner and are worth considering despite potentially higher premiums.

Home Care Benefit Percentage

Many policies allow you to select different coverage percentages for home care versus facility care. While choosing a lower percentage for home care reduces premiums, statistics show that most people prefer to receive care at home when possible.

Consider selecting 100% home care benefits to maximize flexibility and ensure adequate coverage regardless of where you receive care. This may increase premiums slightly but provides greater peace of mind and options for aging in place.

Waiver of Premium

This valuable feature suspends premium payments while you’re receiving benefits. Ensure your policy includes this provision, particularly for the healthy spouse if the other requires care. This prevents the financial strain of continuing to pay premiums during an already financially challenging time.

Key Benefits to Highlight in Long-Term Care Planning

When evaluating long-term care options, pay particular attention to these essential benefits:

Care Coordination Services

Quality policies often include care coordination services that help assess needs, develop care plans, and arrange for appropriate services. This benefit provides invaluable assistance during a stressful time and helps ensure you receive the most appropriate care.

Respite Care Coverage

This coverage provides temporary relief for family caregivers, allowing them necessary breaks while ensuring professional care continues. This benefit supports the well-being of family caregivers and can help sustain family-based care arrangements longer.

Bed Reservation Benefit

If you need to temporarily leave a nursing facility for hospital care, this benefit holds your place for a specified period. Without this coverage, you might lose your spot and face challenges finding a new placement upon discharge.

Alternative Plan of Care

This provision allows for coverage of emerging care options not specifically defined when the policy was issued. As care delivery evolves, this flexibility ensures your policy remains relevant and can adapt to new care approaches.

International Coverage

For those who travel or may relocate internationally, this benefit ensures coverage continues regardless of where care is needed. This is particularly valuable for retirees planning to spend significant time abroad or those with family in other countries.

Financial Implications for the Healthy Spouse

When one spouse requires long-term care in a facility, the financial impact on the healthy spouse remaining at home can be significant:

• Living Expenses: The healthy spouse’s living expenses may remain unchanged or even increase if they must now manage household costs alone.
• Asset Division: Medicaid rules for asset division between spouses can be complex and vary by state. Without proper planning, the healthy spouse may face significant financial constraints.
• Income Planning: Ensuring the healthy spouse has sufficient income to maintain their standard of living while paying for the other’s care requires careful financial strategizing.
• Estate Planning: Protecting assets for the healthy spouse and potential heirs while qualifying for necessary care benefits demands specialized planning.
• Financial Security: The depletion of shared assets to pay for care can dramatically reduce the financial security of the healthy spouse, potentially impacting their own future care options.

Early planning can help ensure that both spouses are protected and that resources are allocated fairly and sustainably, preserving quality of life for both partners regardless of care needs.

Local Program Information Resources

For those interested in learning more about government programs that may assist with long-term care costs, here are valuable resources for our local clients:

• New Jersey Medicaid: New Jersey Department of Human Services - Division of Medical Assistance and Health Services
• Pennsylvania Medicaid: Pennsylvania Department of Human Services - Medical Assistance (Medicaid)
• Federal Medicare Information: Medicare.gov - Long-Term Care Information

These resources can help you understand eligibility requirements, coverage options, and application processes for these important programs. However, remember that Medicaid should generally be considered a last resort after exploring other long-term care funding strategies.

Conclusion: Taking the Next Step

Proactive long-term care planning is an essential component of a comprehensive financial strategy. By starting early and considering all available options, you can protect your assets, ensure quality care, and maintain peace of mind for you and your loved ones.

Each individual’s situation is unique, requiring tailored strategies that align with personal and financial goals. Understanding the costs, options, and potential impacts on your family allows you to make informed decisions that secure your financial future and maintain your independence as you age.

If you’re ready to explore which long-term care plan best fits your financial and retirement objectives, consider scheduling a free consultation with Financial Life Planning. Our team can help you navigate the complexities of long-term care planning and ensure your strategy is tailored to your unique needs—empowering you to face the future with confidence. Click the free consultation button to get started today.

Edward C. Goldstein, CFP®, MBA, President
CERTIFIED FINANCIAL PLANNER ™ Practitioner 
Financial Life Planning, LLC
10,000 Lincoln Dr. East, Suite 201
Marlton, NJ  08053
Phone: 856-988-5480
Fax: 908-292-1040