With so many different types of insurance policies available, it can be difficult to know which is right for you. This is especially true when you don’t know what care you will need when you get older.
Traditional health insurance doesn’t cover most types of long-term care needs, which is why some people invest in long-term care insurance policies. These supplemental policies cover the gap, allowing you to control the type of care you receive as you age.
However, some individuals have life insurance policies with accelerated death benefits that may cover the cost of long-term care. Below, we’ll break down the pros and cons of each type of policy so you can make an informed decision about which is right for you.
Understanding Long-Term Care Planning Options
The cost of long-term care continues to rise. In fact, CareScout estimates that the annual cost of a semi-private room in a nursing home is about $111,000. That is expected to reach over $270,000 by 2054.
If you want to afford care in the future, it is critical that you start to plan now. For many, insurance-based solutions are the only way they can afford their extended care needs. It helps them secure the type of care they want without becoming a financial burden on their loved ones.
As you plan for your long-term care needs, different policy structures can impact the type of care you qualify for. You need to understand what your policy covers, including benefit triggers and any types of care that may be excluded.
Regardless of the type of policy you secure, both provide financial assistance in your time of need and leave a legacy for your family.
What Is Standalone Long-Term Care Insurance?
Long-term care insurance is a standalone, supplemental insurance policy that helps cover your long-term care needs. Much like traditional health insurance policies, with long-term care insurance policies, you can choose how much coverage you want to receive, the duration of the coverage, the length of your exclusion period, and more.
Your premium will depend on your policy coverage, age, health status, and other qualifying factors. Typically, the younger you are when you purchase an LTC insurance policy, the lower the premium.
LTC insurance policies cover care that is not covered in traditional health insurance policies. These include in-home care, nursing homes, assisted living facilities, and other care settings. Keep in mind that you have to qualify for care in order for coverage to be triggered.
Individuals who are no longer able to complete at least two of the six activities of daily living (bathing, dressing, eating, continence, toileting, and transferring) should qualify for care. A medical professional can assess your ability to complete these activities. You may also have to take additional tests, including a mini-mental health assessment, to assess if you are eligible for care.
What Are Accelerated Death Benefits?
Accelerated death benefits can be part of life insurance policies. Traditionally, life insurance policies are claimed by your beneficiaries after your death to help cover the cost of your arrangements, settle estate debts, or simply leave a legacy for your loved ones.
Some life insurance policies can include accelerated death benefits, which allow you to tap into a portion of your life insurance benefits while you are living to cover eligible expenses. In order to do so, you have to qualify. Associates who require long-term care because they are no longer able to complete ADLs or face a terminal illness may be able to leverage their life insurance benefits while they are still living to cover a portion of the costs related to their care.
However, how much – if at all – you will be able to use depends on the terms of your life insurance policy. Some policies only allow you to use 50 percent, while others limit you to a percentage of the total policy value each month. Whatever you use on long-term care will be removed from the total amount of your policy before it is paid out to your beneficiaries.
You should check your policy to see other limitations and conditions that are tied to your policy about accelerated death benefits.
Comparing Costs and Premium Structures
While both long-term care insurance policies and accelerated death benefits can cover long-term care needs, there are other factors to consider when choosing which is right for you.
- Premium stability vs. long-term affordability considerations. Life insurance premiums may be more stable, while LTC premiums can increase over time to keep pace with inflation. This may make your premiums more expensive, so you need to make sure you can afford them, both now and in the future.
- Upfront costs vs. long-term value. A $100,000 policy may have been a lot a decade ago; however, now, that wouldn’t cover the cost of a year’s worth of care in a nursing home in a semi-private room. The long-term value of policies may change as they age.
- Retirement and estate planning. LTC insurance gives policyholders control over the care they receive and protects their financial legacy. You either use the benefits or lose them, and they are not tied to your estate or the money you will leave behind. If you tap into a life insurance policy with your accelerated death benefits, you are reducing the amount you will leave behind to your loved ones. Both can be essential parts of your estate planning.
There are pros and cons to each policy, so it’s important to discuss your options with a qualified professional to understand which is best for you.
Flexibility and Use of Benefits
Care choices may vary between standalone long-term care insurance and accelerated death benefits. Long-term care insurance policies tend to be more strict. To secure one, you have to pass a health evaluation, while to get accelerated death benefits, you do not.
Long-term care policies cover a variety of care settings and providers, including in-home care, nursing homes, assisted living facilities, adult day care centers, and more. Once your benefits trigger, you have to wait an exclusion period, during which you need to cover the care out of pocket before you can be reimbursed.
Accelerated death benefits provide a lump sum for you to cover care costs as you deem necessary. Once you qualify, you can use the funds as you need. However, you are also limited to a certain monthly allowance based on your policy value.
Long-term care insurance policies are not passed down to your estate, so you must use them, or you lose them. Whatever is left of a life insurance policy will be passed down, but it can exhaust your estate and leave it without any financial security in the future.
Payout Structure and Financial Trade-Offs
For those who are looking to protect their financial legacy, traditional long-term care insurance may be the best option.
- Accelerated benefits reduce life insurance payouts to your beneficiaries. While they will not have to incur the cost of your care, what you leave behind for them will be significantly reduced.
- Long-term care insurance allows you to separate your care from your estate assets. It covers the cost of your care without exhausting your overall resources.
- Long-term care insurance can improve financial outcomes for both your care and your family’s legacy. Policies keep up with inflation, allowing your policy to go further and cover the cost of your care.
Each policy offers unique financial trade-offs, so you have to decide which is more important to you in the long run.
Use Cases: Which Option Fits Different Planning Goals?
There are different scenarios where long-term care or accelerated death benefits may be better.
For example, long-term care insurance is completely separate from your estate. While you will need to cover the cost of care during the exclusion period, otherwise, you will not need to tap into your estate to fund it. The money you worked so hard for can be passed down to future generations instead of being exhausted for your care.
However, not everyone qualifies for long-term care insurance. Some people may have pre-existing conditions that preclude them from securing coverage. In these instances, it may be best to tap into accelerated death benefits. You will reduce what you leave behind, which is better than becoming a financial burden on your loved ones.
It’s critical to balance legacy planning with your long-term care needs when deciding which works best for your goals.
State-Level Considerations That Can Impact Long-Term Care Planning
It’s critical to consider where you live and where you plan to seek care. Long-term care insurance and regulations may vary by state. There are differences in care costs, benefit availability, and consumer protections across regions that can impact the type of care you receive.
It can be challenging to navigate these complexities alone, which is why working with an advisor familiar with multi-state planning can help. Our team at Lavine LTC Benefits can help ensure you get the right coverage for your long-term care needs while staying within your budget.
Making an Informed Long-Term Care Decision
Whether you’re looking for a long-term care policy or a life insurance policy with accelerated death benefits, it’s critical that you make an informed decision. Evaluate your personal health, finances, and family responsibilities.
Compare policy options with insurance professionals and financial advisors to ensure you are securing one that works for you now and in the future.
Schedule a free consultation with Lavine LTC Benefits to get started. It is never too early to start planning. You will often get more flexibility and control, allowing you to secure more favorable terms and avoid exclusions based on prior health history.
You owe it to yourself to protect what you worked so hard for.