Should Long-Term Care Insurance Be Part of Your Retirement Planning Tool Box?

In 2021, the nation’s long-term care insurers paid out $12.3 billion in claims to 336,000 policyholders in which some claims totaled over $1 million. This represents a significant increase over prior years according to the Association of Long-Term Care Insurance (AALTCI). The 2021 payout was approximately $700 million more than what was paid out in 2020 and represents an increase of $2 billion over the total claim benefits paid by the industry in 2018. In 2021 there were 11,000 more policyholders paid as compared to 2020.

According to data provided by Genworth’s US life insurance division, fewer than 10% of those that will likely need LTC actually have policies. Related data from Northwestern Mutual suggests 70% of people over the age of 60 will face a long-term care event.

A HealthView Services analysis reveals that an average, healthy 65-year-old male/female couple has a 75% chance of at least one spouse requiring some form of long-term care if each live to their actual life expectancies. Failure to plan for long-term care could mean substantial medical bills, which without long-term care insurance, could mean the liquidation of retirement assets.

When trying to determine whether you should purchase long-term care insurance, consider the following: if you required long-term care, do you have enough money to pay for four or more years in a nursing home, an assisted living facility or to receive in-home healthcare?

In 2020, the median yearly cost of nursing home care in Michigan was $107,676 for a semi-private room and $116,796 for a private room. In other words, four years in a nursing home would cost in excess of $430,704. Although assisted living facilities cost less, they do not provide the same level of care and, in the event you need a higher level of care, assisted living facilities may not be an option for you. In 2020, the median yearly cost of an assisted living facility was $50,400. The median cost of in-home care was $57,204.

Perhaps you have considered purchasing a long-term policy, but you are not sure at what age you should purchase it. The optimal age is in your 50s. According to Wakely Consulting Group, an actuarial firm, of applicants who applied for long-term care insurance in 2003–2004, 11% of applicants in their 50s, 19% of applicants in their 60s and 43% of applicants in their 70s were rejected. It is estimated that 15-25% of the over-65 age group are uninsurable for long-term care.

You may be thinking you will need long-term care and therefore, long-term care insurance, but have no idea what long-term care insurance costs. According to the 2020 long-term care insurance Price Index, the average long-term care insurance rates for someone age 55 are $1,700 per year for a male, $2,675 per year for a female and $3,050 (combined) for a couple, both age 55.

Regardless of whether or not you decide to purchase long-term care insurance, it is important to plan for your long-term care expenses and discuss those plans with your family. For additional resources on long-term care, visit the American Association for Long-Term Care Insurance at www.aaltci.org.