Phil sits at the breakfast table, looking out at the mountains he had climbed just last month. Little did he realize then that just a few days later, he’d be clawing his way down his driveway to get help for what he figured was a stroke. His whole left side was paralyzed, from his arm down through his leg.

A helicopter ride and emergency brain surgery can be credited for his amazing recovery, despite being told he might not walk again. That he has avoided paralysis feels like a miracle. At just 53, it could have meant decades of long-term care, with all the implications for his finances and family.

Because he was so physically active and healthy, Phil had planned to buy long-term care insurance when he turned 60. Now he’ll never qualify for it.

Of all the different kinds of insurance, the conversation about long-term care (LTC) insurance probably raises more questions than any other.

Granted, most insurance is use-it-or-lose-it. And you and your insurer are both hoping you won’t have to use it.

But rising healthcare costs have pushed LTC premiums sky high. One way to get them down is to start with lower premiums by buying a policy at a younger age. That could mean paying premiums over several decades for something you might never need. But what it could get you – no matter what – is peace of mind.

The long-term care you need

As you age, your need for care comes from aging itself or a long-term care event.

With time, tasks you did easily become more difficult. Whether a matter of strength or balance, you may ask for – and eventually pay for – help to do them. Tasks might include home maintenance, cleaning, driving or any other day-to-day chores. These costs do not qualify for coverage under LTC insurance, so they should be included in your retirement calculations.

Long-term care events. Events that trigger qualification for benefits under an LTC insurance policy are explicitly defined. They can be:

  • The inability to perform any two of six basic self-care routines called Activities of Daily Living, or ADLs. The six are eating, bathing, dressing, toileting, continence and transferring from one surface to another. They are considered custodial care.
  • The inability to interact safely with your environment because of cognitive impairment: your memory or reasoning.

In most cases, LTC is needed for about three years, but it can last far longer if it results from some form of dementia, a severe accident or a stroke.

Where care is provided

Early care may come from loved ones or friends, as they step up to support you. With time, they may add outside help to their efforts to keep you in your home. In many cases, care never progresses beyond the home by calling on:

  • Housekeeping services.
  • Part-time skilled nursing care prescribed by your doctor.
  • Community-based adult daycare.

If those support services are no longer enough, care may be provided in venues such as assisted-living facilities, continuing care retirement communities and nursing homes.

What care costs

As the need for care increases, so does the cost of care. Genworth Financial has tracked costs for 17 years, publishing the Cost of Care Survey each year. In 2020, it reports monthly costs as:

  • In-home care: Homemaker services ($4,481) and home health aide ($4,576).
  • Community and assisted living: Adult day health care ($1,603) and assisted living facility ($4,300).
  • Nursing home facility: Semi-private room ($7,756) and private room ($8,821).

Note: Aforementioned costs represent national monthly median costs. The cost of that care varies based on care setting, geographic location of care and level of care required, among other things. Costs in Northeast are some of the highest in the country.

Based on its research, Genworth projects that costs will double in the coming 20 years and says that 70% of people turning 65 today will need long-term care during their lifetime.

How long-term care can be paid for

Unless you have the resources to carry the costs of long-term care, you might want to explore the various coverage options:

Permanent life insurance (with a critical-care rider) lets you access most of your death benefit while you’re alive to cover your LTC costs.

Traditional LTC insurance allows you to customize your best plan by combining different levels of daily benefits, elimination period, benefit period, cap and inflation protection.

Hybrid LTC insurance combines life insurance benefits with LTC coverage, so if you never need the LTC benefits, it works like a traditional life insurance policy. (An annuity may replace the life insurance.)

Hybrid policies are growing in popularity as they resolve the frustration of paying premiums for something you don’t use. In 2018, 84% of the LTC insurance sold was for hybrid policies. Only 16% was for standalone traditional policies. (Source: American Association of Long-Term Care Insurance).

The different elements of LTC policies

The cost of traditional LTC policies depends on the combination you choose for:

The daily benefit, such as $100-200-300 per day.

The elimination period, or the period you wait before your policy starts paying, such as 30-90-180 days.

The benefit period, or the period used to calculate your total benefits package, such as 3-4-5 years.

The cap, either a fixed dollar amount or a combination of the daily benefit and the benefit period.

Inflation protection, to be sure the daily benefit is large enough once you finally need it.

Who gets LTC coverage

You must be “health qualified” to be accepted by insurance companies for LTC insurance. In 2019, according to the American Association of Long-Term Care Insurance, the turn-down ratio of those who applied for traditional LTC insurance was:

21.0% of those age 50 to 59.

24.0% of those 60 to 64.

32.5% of those 65 to 69.

44.0% of those 70 to 74.

51.5% of those 75 and older.

What to consider

If you become part of the 70% of over-65ers who will need some form of long-term care, will you be able to pay for it?

Medicare will pay for up to 100 days of nursing home care, as well as some skilled in-home services, but nothing else.

Medicaid, on the other hand, pays the largest share of LTC services. But, to qualify, your income must be below a certain level, and you have to meet minimum state eligibility requirements. Frankly, you need to be impoverished to qualify.

If and how you decide to cover your possible LTC needs is very personal. But the decision affects more than just the care you get; it also affects those you love – financially, physically and emotionally.

Long-term care deserves to be part of the conversation you have regarding your financial plan(s). And – to give you the largest number of options – the sooner, the better.

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