Make Long-Term Care Insurance More Affordable

Do you know someone in your life who needs long-term care? Maybe they are a family member, friend, or acquaintance. There are many circumstances where a health condition could result in someone not being able to care for themselves for an extended period of time. Maybe they need help with activities like bathing or dressing, or they have a disease like Alzheimer’s and need supervision.

Those needing care may be fortunate to have a loved one provide unpaid care, but with caregiving burnout on the rise, often professional help is needed. And with long-term care costs not covered by Medicare or health insurance, it’s up to the family to come up with ways to pay for care that can be expensive!

According to Genworth, the median cost of a home health aide in 2021 was nearly $62,000 per year! That’s a 12.5% increase from 2020. And according to a PwC study, the average person who needs long-term care will spend $172,000—imagine what the cost will be in the future with inflation.

Luckily, there is a solution. When someone needs help with things like bathing or dressing, long-term care insurance (LTCI) can make a remarkable difference in a family’s life. However, many people wildly overestimate the cost of LTCI. In reality, the average premium is about $2,500 annually. Sure, that’s not a trivial amount, but compared to the cost of care… there is serious value in coverage.

To get the most bang for your buck, here are five strategies that can help make LTCI more affordable:

1. Buy at a younger age. 

In one example, a 50-year-old couple who purchases a long-term care insurance policy with a $200,000 benefit for each spouse growing at 3% annually would pay a combined annual level premium of $3,573. If they waited until age 60, their annual premium would instead be $4,606. Not to mention that by age 85, the 50-year-old purchasers would have a much higher benefit level because their policy would have grown for 10 additional years at 3%!

2. Buy a smaller policy and let automatic inflation coverage grow its benefit over time. 

Another strategy is to buy a more modest policy at a younger age and then allow automatic inflation coverage to grow its benefit. As an example, a healthy, 50-year-old single male can buy LTCI with an $80 per day/3-year benefit with 5% compound inflation coverage for about $150 per month. At age 86 (when he may need long-term care, for example), the benefit will have grown to $463 per day and a total benefit maximum of more than $500,000. That’s the power of compound inflation.

3. Budget a premium that is a percentage of your income. 

When saving for retirement, the most popular vehicles are tax-qualified plans like a 401(k). Most employees pick a percentage of their salary, like 6%, to contribute to a 401(k) plan. In the same way, someone could decide that a certain percentage of their income, say 2%, will be spent on long-term care insurance. For example, someone earning $100K per year can look at how much coverage a $2,000 annual premium will get them. This can help you plan for the long run.

4. Use money from your Health Savings Account to pay premiums.

Did you know that you can withdraw money from your Health Savings Account to pay LTCI premiums? Since HSA contributions by employers and employees are pre-tax, by using those same dollars for LTCI premiums, you are paying for coverage with pre-tax dollars. And long-term care insurance benefits are tax-free for actual expenses as well!

5. 1035 exchange existing permanent life insurance policies to a combination life/LTCI plan. 

As people age, their need for life insurance may decrease while their need for long-term care insurance increases. Many don’t realize that they can take existing permanent life insurance plans with cash value and purchase combination life insurance/LTCI plans using that cash value on a tax-favored basis. This could either reduce or eliminate the need for additional premiums.

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