Are your clients risking it all on long-term care?

01/19/2024 — Key takeaways:

• The cost of LTC is significant—and rising. Planning to pay for LTC out-of-pocket may pose serious financial consequences.
• You can help your clients understand the consequences of not having a plan, evaluate LTC insurance options, and help protect their financial assets.
• LTC coverage provides pre-leveraged funding to help pay for LTC costs and help protect income.

As a financial professional, your mission transcends helping clients build wealth. It also includes safeguarding their hard-earned assets from potential risks.

One of the most significant risks to retirement savings—and one that many investors and some financial professionals overlook—is the cost of long-term care (LTC). Considering the rising cost of LTC and the increasing likelihood of needing it as we age, taking steps to mitigate financial consequences becomes even more critical in comprehensive retirement planning.

The escalating costs of long-term care

Whether it’s in-home care, assisted living, or nursing-home care, costs for long-term care are already high—and will continue to rise over time. On a national average, the yearly cost of part-time in-home care (24 hours per week), for instance, is projected to almost double over 20 years to nearly $60,000 by 2043. At the other end of the spectrum, annual nursing home costs will likely rise to more than $218,000 by 2043.¹

For many retirees, this can mean watching their retirement savings dwindle rapidly—potentially compromising the financial stability they worked decades to secure, and even more, for the financial security of a surviving spouse. Without adequate planning, some clients may face the potential of liquidating assets—possibly at a loss or at inopportune market times—that could have otherwise been preserved or passed on to their heirs. Other clients may have to make difficult choices about the quality of their care or rely unplanned on family members to supplement or totally provide care.

How long-term care insurance may help

Long-term care coverage helps avoid unplanned consequences by providing a pre-leveraged stream of funds to pay for long-term care expenses. LTC policies are designed to cover expenses that aren’t typically covered by standard health insurance or Medicare, such as ongoing custodial care services.

To qualify for LTC benefits, the insured must be diagnosed with a cognitive impairment or with the inability to perform two or more activities of daily living for at least 90 days. Depending on the type of coverage, policies may be customizable, with options for different benefit amounts, lengths of coverage periods and inflation options. This allows for a tailored approach to each individual’s future care needs and financial goals.

There are many potential advantages to including LTC coverage in a financial plan:

• Managing the unknown. It’s impossible to predict when an LTC event may occur. Those who think self-funding is a good idea must assume they have many years or decades to save and will grow this fund at a certain average percentage over time. But life does not always follow our plans. One advantage to insuring for LTC is that you have a pre-leveraged pool of funds to help pay for LTC expenses, no matter when such an event might occur–whether it’s a couple of years or a couple of decades down the road.
• Predictability of costs. The cost of LTC has continued to rise over time. Being able to acquire LTC coverage that offers inflation protection is a way to keep up with the cost of a potential extended care situation.
• Protection of premiums. Today’s LTC policies offer more than policies of the past. You can choose a policy that has a guaranteed premium that can never go up. And more importantly, you can also choose a policy that pays out whether LTC is needed or not–assuring that your clients’ premiums dollars are never wasted.
• Protection of assets. LTC insurance can help to prevent the rapid depletion of retirement funds, helping to ensure that the savings your clients accumulated remain intact for their intended use—whether that’s to support their lifestyle, leave an inheritance, or both.
• Fewer worries. Concern about paying for care can place a lot of stress on older individuals. Knowing an insurance policy is in place to help cover these costs can let your clients worry less and enjoy their retirement years more. The coverage can also help to alleviate the potential financial and emotional challenges on family members who might otherwise feel responsible for financial support or caregiving.

Assessing the need

You can educate your clients about the costs of long-term care and help them assess the shortfall in planning should an LTC event occur. Encourage them to consider the financial consequences a lack of planning could have on their future, a surviving spouse’s financial security, and any legacy planning they have in mind. Running calculations to show how long their savings may last once they begin paying for LTC is one way to help them understand the risks.

Waiting comes at a price

LTC insurance premiums are largely based on age. The earlier your clients purchase a policy, the lower their annual premiums will be. Waiting also increases the chance that a health issue could occur—making coverage more costly or even resulting in a decline from the insurance company.

For those reasons, incorporating LTC insurance into retirement planning earlier versus later may result in significant cost savings. Most experts recommend clients purchase LTC coverage in their early 50s.

Have the conversation

As you advise clients on the complex landscape of retirement planning, integrating LTC insurance is an essential discussion. In presenting this option, it’s important to convey not just the protection it offers for their assets but the confidence it can provide. LTC insurance is not just about covering costs—it’s about ensuring that the retirement years can be enjoyed as envisioned, with dignity and choice.