Long-Term Care

Long-term care is a collection of services that assist people who can no longer perform activities of daily living due to illness, injury, disability or advanced age. Care can be provided at home or at another location, such as an assisted living facility or nursing home. Most older Americans will require long-term care, which can cost tens of thousands of dollars each year.

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Eric Estevez
  • Written By Eric Estevez
  • Edited By
    Michael Santiago
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    Michael Santiago

    Senior Financial Editor

    Michael Santiago is a skilled writer and editor with over a decade of experience in various industries. As a senior financial editor, he collaborates with a team of experts to develop compelling and accurate content.

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  • Financially Reviewed By
    Daniel J. Adams, MBA, CFP®, CLU®
    Daniel J Adams, Annuity.org reviewer

    Daniel J. Adams, MBA, CFP®, CLU®

    Founder and President of CEG Life Insurance Services

    As the founder of CEG Life Insurance Services, Daniel J. Adams has extensive experience with life and health insurance products. Daniel assists clients in building a secure financial future as a Certified Financial Planner™ professional and independent insurance agent. He also trains new agents and advises other financial professionals.

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  • Updated: May 22, 2024
  • 12 min read time
  • This page features 27 Cited Research Articles

A majority of people age 65 and older will need long-term care services at some point in their lives. Relatives may be able to assist, but this isn’t always feasible. Professional help may be necessary.

The annual national median cost for a private nursing home room was $108,405, according to the 2022 Genworth Cost of Care Survey. It also found the median cost for assisted living facility care was $54,000 per year.

Figuring out how to pay for these services is challenging for many aging Americans and their families. Most insurance plans, including Medicare, do not provide coverage for long-term care. Medicaid may be an option, but it can require planning years ahead.

What Is Long-Term Care?

Most long-term care isn’t medical care. It assists with daily activities, such as bathing, dressing, using the toilet, eating and moving around. It can also include things such as adult day care, transportation and meal delivery.

Long-term care helps you maintain your quality of life for as long as possible. You may need these services on a regular or intermittent basis for weeks, months or years.

As the demand for long-term care has increased over the years, the insurance industry has adapted accordingly. Many insurers have adjusted their product offerings to meet the growing demand for these services.

Types

Long-term care takes many forms. Each offers unique advantages, depending on your lifestyle and specific situation. Deciding where to receive care starts with exploring your options.

Popular Types of Long-Term Care

  • In-home care
  • Nursing home
  • Assisted living
  • Adult day care

In-Home Care

In-home care allows you to age in place by providing health, personal and support services in the comfort of your home. Family, friends and neighbors often provide in-home care, but sometimes professional assistance is needed. A visiting nurse, volunteer, therapist or home health aide can assist with these tasks. 

This can also include homemaker services, which help older adults with household tasks such as cooking, cleaning and running errands.

In my experience, this is normally the preferred method of long-term care. The physical and mental toll on a family can be too large to bear, which is where long-term care coverage can be beneficial.

Nursing Home

Nursing homes are a suitable choice for individuals who do not need hospitalization but are unable to live independently at home. Some skilled nursing facilities resemble hospitals, providing comprehensive rehabilitation services and specialized care units for individuals with severe memory issues. These facilities offer round-the-clock nursing care, accommodation, supervision, medication administration and various therapies. The level of care can vary, ranging from bi-weekly physical therapy to daily assistance with mobility and everyday tasks. When in-home care becomes too challenging, transitioning to a nursing home often becomes the logical next step.

Assisted Living Facility

Assisted living facilities are designed for seniors who require some assistance but do not need the same level of medical care as a nursing home. These complexes vary in size, with residents typically living in their own apartments or units while sharing common areas. Personal care and other support services are provided as required. Seniors with the financial means to cover the expenses often find assisted living to be a valuable option. It’s not unusual for reverse mortgages to be considered as part of the financial planning required to afford this type of long-term care.

Adult Day Care

Adult day care is a group program that offers socialization, planned activities and meals for those who need help with activities of daily life. Adult day care generally takes place at a public facility in the community and provides a reprieve for caregivers who may work or tend to other daytime obligations.

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Who Needs It?

Many older adults need long-term care, and age plays a major role in determining a person’s needs. By 2030, all baby boomers will be at least 65 years old, according to the U.S. Census Bureau. This implies that a greater number of older Americans will likely need some form of long-term care than in previous times.

Pre-existing conditions and chronic illnesses are other factors that contribute to a person’s need for services.

According to the CDC, Alzheimer’s disease is the sixth leading cause of death in the United States — and the only leading cause that cannot be cured, prevented or slowed.

The Alzheimer’s Association also notes that the lifetime cost of care for a person with dementia is $392,874. The majority of families would not be able to shoulder such a cost.

Costs are on the rise, primarily due to the fact that individuals with Alzheimer’s and other dementias typically need more stays in skilled nursing facilities and home health care visits per year compared to other elderly individuals.

Your sex and current living arrangements also impact your need for long-term care. If you live alone, you’re more likely to require paid care than someone who lives with a spouse or family member.

Women are also more likely to need long-term care because they live an average of five years longer than their male counterparts.

With a growing recognition of the likelihood of needing long-term care at some point, the rising cost of such care, and concerns over government mandates and programs, I have noticed an increase in interest in long-term care insurance over the past few years, even among those under age 50. It is becoming increasingly apparent that long-term care planning is a vital component of comprehensive financial planning and should not be deferred until you approach retirement age.

Cost of Assisted Living and Nursing Homes

Long-term care may be your costliest health care expense in retirement.

The hourly cost for a home health aide is $27, according to the 2022 Genworth Cost of Care Survey. The survey reported that from 2004 to 2021, the cost of home health aide services rose from $42,168 per year to $61,776 — a 45% increase.

The cost of a private nursing home room has risen by 66%, and assisted living facility expenses have increased by 87.5% during the same period.

The company’s annual Cost of Care Survey uses data drawn from thousands of interviews with nursing homes, adult day cares, home care providers and assisted living facilities across the United States.

According to 2022 survey results, nursing homes are the most expensive long-term care option — median values show $106,920 for a private room and $93,600 for a semi-private room.

Among long-term care options, adult day care was the most cost-effective choice. In 2021, the national median cost for adult day care was $78 per day.

Several factors can impact the cost, including your location, insurance coverage, the duration of your stay and the utilization of specialized services like speech or physical therapy.

Did You KNow?

The cost of a private room in a nursing home increased by about 66% percent from 2004 to 2021.

It’s important to note that cost also widely fluctuates from state to state. 

Ways To Pay for Long-Term Care

Covering these costs is challenging for many Americans planning for retirement.

Original Medicare, the federal health insurance program for people aged 65 and older, pays 100 percent of nursing home costs for only 20 days. This is often for post-hospitalization rehabilitation care. After 20 days, patients must contribute a daily coinsurance. Medicare does not cover any nursing home expenses after 100 days.

The U.S. Department of Veterans Affairs (VA) does provide some help with long-term care. However, eligibility hinges on your service-connected status, level of disability and income. The VA can also provide adult day care, respite care and skilled home health care.

Medicaid, the federal health insurance program for the financially disadvantaged, covers long-term care but is typically considered a last-resort option for coverage. Eligibility requirements vary widely by state, but nearly all include strict asset limits. This forces many older people to spend nearly everything they have in order to qualify for the program.

Home Equity and Reverse Mortgages

If you own your home, you may be able to leverage it to pay for long-term care through a reverse mortgage or traditional home equity loan. You may also choose to rent the property out or put it up for sale. It is typical for most of one’s net worth to be in their primary residence, so it is a very valuable resource for seniors who need care.

A reverse mortgage is a loan taken against your home’s equity. After the borrower has vacated the home, the home is sold to pay the loan.

You must be at least 62 years old to qualify for a reverse mortgage. You can receive this money in monthly payments, through a variable line of credit or in a lump sum. Unlike a traditional mortgage, you do not need to provide an income or credit history to get the loan.

Money from a reverse mortgage can pay for in-home care or for repairs to make your house safer and more accessible. However, a reverse mortgage is not free money and often comes with above-average closing costs and interest rates. Your loan balance increases as your home equity decreases. The cost of a reverse mortgage depends on the type of loan and lender you choose.

A reverse mortgage won’t affect your Medicare benefits, but it may impact Medicaid.

Typically, reverse mortgage payments aren’t counted toward your income if you spend the money the same month you receive it. The unspent balance from a lump-sum reverse mortgage loan, or the accumulation of these payments, may exceed asset limits for Medicaid.

Reverse mortgages are complex products that are typically more expensive than other home loans. Do your homework by comparing options, terms and fees from multiple lenders. Learn as much as possible before speaking to a counselor or lender.

Read More: Long-Term Care Statistics

Long-Term Care Insurance

Spending tens of thousands of dollars a year on long-term care can quickly deplete savings and other resources. Insurance is a way to safeguard against this significant financial drain. While many may scoff at the cost, a deeper dive may prove that the expense is worth it. It is impossible to say these products are great for everybody, as each situation is different.

Private long-term care insurance is cheaper when you’re younger and healthier. Taking proactive steps in advance can potentially save you tens of thousands of dollars. Premiums have the potential to increase significantly over time, and deteriorating health conditions may lead to disqualification for more favorable coverage.

Deciding how much insurance to buy may feel like a balancing act. While you can almost always decrease coverage, it is much more difficult to increase it later, especially if your health declines. On the other hand, purchasing too much insurance can be an unnecessary financial burden, especially if your family can assist with some daily living tasks, or at least help you pay for them.

For $165,000 in long-term care insurance benefits, the yearly premium for a 55-year-old single man in 2023 started around $900, according to the American Association for Long-Term Care Insurance. However, the yearly cost for a woman was $1,500.

When deciding how much insurance to buy, consider your future needs. Assisted living, for example, is cheaper than a nursing home. Speak with an insurance agent or broker to explore ways to customize your coverage at a price you can afford.

Combining Life Insurance and Long-Term Care Insurance

If you don’t use it, you lose it. This is often the biggest complaint about traditional long-term care insurance. Paying into a policy you may never use doesn’t sit well with some potential policy buyers.

A popular option addresses this concern by combining life insurance and long-term care insurance. Hybrid or combination policies, as they are known, cover long-term care expenses while you are alive and transform into life insurance benefits for your heirs after your passing.

You may even have the ability to access death benefits while you’re alive to help with long term care costs.

The long-term care benefit amount is usually expressed as a percentage of the life insurance benefit. Hybrids usually cost more than traditional standalone products and often include additional benefits, such as protection against future premium increases.

Some hybrid policies ensure that original death benefits are paid to your loved ones even if long-term care proceeds are fully tapped.

Hybrid and combination policies are now more popular than traditional long-term care insurance plans. In 2020, 421,000 combination policies were sold— significantly higher than the 15,000 combination policies sold in 2007, according to Limra, an industry research and consulting firm.

Accelerated Death Benefit

An accelerated death benefit is another way life insurance can cover long-term care costs. This feature allows you to receive a portion of your life insurance when you’re alive if you are terminally or chronically ill. Sometimes insurance companies can add this option to your policy for little or no cost.

The accelerated death benefit can be used to pay for different services, including home care, skilled nursing care, assisted living and hospice. Money used for long-term care is subtracted from the amount paid out by your life insurance company to beneficiaries after you die.

Even if your current insurance plan doesn’t include this option, it can sometimes be added as a rider or an additional feature tacked onto a life insurance policy.

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Combining an Annuity With Long-Term Care Benefits

Life insurance isn’t the only way to offset long-term care costs. Certain annuities also make it easier to fund future expenses. An annuity is a contract issued by an insurance company that converts your premiums into a guaranteed fixed income stream.

Alternatively, you can buy a deferred annuity with payouts scheduled to begin later and earmarked for long-term care. Withdrawing the money later means larger payments, which will cover more of your long-term care expenses.

Among your annuity options is a qualified longevity annuity contract (QLAC), which is a deferred annuity held inside a tax-preferred retirement savings plan. QLACs reduce the requirement to withdraw legally mandated sums from retirement accounts at age 73 (as of 2023). These withdrawals are known as required minimum distributions, or RMDs.

An annuity that starts to payout when the annuitant is at such an advanced age can be helpful should long-term care be necessary.

When selecting an advisor to assist you with annuities, it’s important to note that both financial advisors and insurance brokers may be qualified to facilitate such transactions. Your choice of advisor plays a pivotal role in making this decision.

I foresee such products becoming more popular with the volatile stock market and economy of recent years. The guaranteed security of principal and benefits will be hard to pass up for many.

Long-Term Care Riders

Some annuities also offer a long-term care rider, which offers the benefit of higher annuity payouts should the need for long-term care arise. Money from this rider can be withdrawn tax-free to finance care. If you are older or have a pre-existing condition, you may find it easier to obtain an annuity rider than to buy a life insurance policy.  

These riders can sometimes double or triple your payment amounts for a specified period of time. For example, a $100,000 annuity would pay out $200,000 or $300,000 worth of long-term care benefits.

To access these benefits, you must prove that you require assistance with several activities of daily living, such as bathing, dressing, eating, moving from room to room or going to the bathroom. This is also standard for traditional long-term care policies.

Life insurance policies also have long-term care riders available. People in the market for long-term care and estate planning should consider adding a rider to their policy, if they don’t go with a traditional policy. This can be a cost-effective way of ensuring your long-term care is paid for, though it may not have all of the benefits of a hybrid long-term care product.  

It’s important to have a trusted advisor who understands your situation holistically. Their industry experience should guide you in making the best decisions for you and your family. Ensure that your advisor specializes in senior market insurance products, as this is an industry that undergoes constant changes and updates.

Brokers can access multiple insurance companies through the contracts associated with their agency. Using multiple brokers might be redundant since they’re likely to be working with the same insurance carriers. It’s advisable to select one trusted advisor, which simplifies the process. What’s more, their commission is typically paid by the carrier, so you won’t have to incur any out-of-pocket expenses for their advice. However, it’s important to be cautious and ask plenty of questions, as there’s a risk that they may have a bias towards the insurance carrier that offers the highest commission.

Editor Bianca Dagostino contributed to this article.

Please seek the advice of a qualified professional before making financial decisions.
Last Modified: May 22, 2024
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