As a value-add service to our investment clients we will analyze their current financial situation and make recommendations, when necessary, that will help them meet their financial objectives. One question that is often asked by those who are preparing for their retired years is whether they should purchase a long-term care policy.
According to Fidelity Investments, the average couple retiring today at age 65 will need approximately $285,000 (in today’s dollars) for medical expenses in retirement. That figure does not include premiums or expenses related to long-term care.
We would all like to know what is going to happen in the future, but since we can’t, the next best thing is to have a plan for it. In my recent article, ‘Nine Risks Retirees Face’ healthcare is listed as one of the retirement risks. In fact, it is arguably the biggest risk that retirees will face because it is the most unpredictable. Transferring that risk to an insurance company through the purchase of a LTC policy may be possible, but it is often expensive. On the other hand, self-insuring runs the risk of “blowing up” a retirement plan or legacy.
Unlike other major forms of insurance where it is either required, or in the case of life insurance, there will be a benefit received as long as the policy remains in-force, LTCI benefits may or may not ever be realized. Even if a claim does arise, return of principal isn’t guaranteed. Since long-term care has so many unknowns, determining the need for coverage really depends on the individual’s financial position, desire for peace of mind, desire to leave a legacy, and even their expected health condition later in life. Thus, broad-based advice (ie: everyone should or shouldn’t) concerning the purchase of a long-term care policy should be avoided. Ultimately, the decision is a personal one.
Fortunately, there is a lot of statistical data available on LTC that can help you in your decision. Here are a few:
350,000 – Number of Americans who purchased long-term care protection in 2018
84% of the insurance products purchased were combo (or hybrid) plans that offer a broad variety of Life+LTC or Annuity+LTC benefits
16% of the insurance products purchased were traditional long-term care policies
$8.14 Billion - Total of 'traditional' long-term care industry claims paid in 2015 to approximately 260,000 claimants. Average = $31,308 per claimant
$10.3 Billion – Total of 'traditional' long-term care industry claims paid in 2018 to approximately 303,000 claimants. Average = $33,993 per claimant
64% of all LTC claims were paid to women in 2018
2.5 years – Average length of time a woman will require long-term care services.
1.5 years – Average length of time a man will require long-term care services.
2 – The typical number of ADL’s (Activities of Daily Living) that an insured must require assistance with in order to receive LTC benefits. ADL’s include:
1. Eating
2. Bathing
3. Dressing
4. Toileting
5. Continence (ability to control one’s bowls or bladder)
6. Transferring (ability to get up out of a chair or bed)
52% - Estimated percentage of people turning 65 today that will require some form of LTC service
$2,100 – Average combined annual cost for a 55 year old couple for a traditional LTC policy
$3,700 – Average combined annual cost for a 65 year old couple for a traditional LTC policy
Genworth has a great Cost of Care site where users can see the costs of the various types of care throughout the United States. It is a great little tool for those who would like to get an idea of what the different costs are now and could be in the future.
The need for a Long-Term Care Insurance product will always be debatable. Fortunately, there are often alternative options to fund a LTC service need that many people don’t even realize that they already have. Given the statistics, it is easy to see why traditional LTC policies are not as appealing as they once were.
Kevin Warman, CIMA®, RMA®
(last updated 04/15/2019)