How To Navigate Long-Term Care Insurance

November is Long-Term Care Awareness Month, an observance that raises awareness of the health care risks faced by those aged 65 and above. These risks include developing disabilities or loss of independence that require home-based or assisted living care when an individual can no longer care for themselves, partially or in entirety. While it is easy to assume you will need assistance, the reality is stark: Over half of Americans who turn 65 in 2025 will face a substantial disability that requires long-term care assistance.

On average, individuals who receive long-term care will need $138,000 to cover just these services, not factoring in their other retirement needs. To protect against these unforeseen costs in retirement, the private sector offers long-term care insurance as a self-funded, insurance-backed safety net.

Types of Long-Term Care Insurance

When choosing a long-term care insurance plan, there are two main types: traditional and hybrid insurance.

Traditional long-term care insurance plans are insurance products designed and funded exclusively for long-term care. With these policies, you either utilize the benefit for home health care, nursing or assisted living facilities, or adult day care services, or it expires. Furthermore, if you have a spouse, the plan can accommodate the needs of both of you.

The main benefit of such policies is that they protect you from financial uncertainty or ruin if you develop a debilitating condition that requires substantial care assistance. However, these policies are generally more expensive than their hybrid counterparts, and if you never develop health issues, you do not recoup any of your paid premiums. Functionally, they act as pooled/group insurance for everyone who uses them.

The second primary type of insurance is a hybrid long-term care insurance policy. These policies use permanent life insurance to create a self-funded, rather than pooled, long-term care safety net. When purchasing these products, the primary focus of the insurance policy is to fund your potential long-term care needs.

The benefits of hybrid policies are that they can cover future care expenditures while also providing a payout to your beneficiaries if you do not utilize the care benefit. These policies are more complex than traditional products and often offer a capped benefit payout should you use the funds for care needs.

Notably, for those looking at hybrid policies, there are two main types: life hybrid policies with a long-term care extension and life policies with long-term care as a rider.

Extension hybrid policies are available as individual or joint policies and integrate life and long-term care insurance into a linked-benefit product. Meanwhile, rider hybrid policies are permanent life insurance policies with added long-term care coverage, should the need arise. The main difference between the two is that one integrates long-term care as a core feature, while the other offers it as an add-on.

In addition to traditional and hybrid long-term care insurance policies, another popular option uses an annuity as the backbone for self-funding your potential care needs.

With annuity-based long-term care insurance, a policyholder contributes to the plan, which grows tax-deferred over time. Then, if you or your spouse needs funds for care, you can draw from the annuity to cover these expenses. Additionally, you can draw retirement income from the annuity if you do not need it for care. Notably, unlike traditional or hybrid long-term care insurance policies, if you use the full annuity value for care needs but still need additional funds, you continue to receive payments from the issuing company, as payment benefits continue until your passing.

For those who often do not qualify for traditional or hybrid long-term care insurance due to pre-existing conditions, annuity-based coverage is usually still an option.

When to purchase long-term care insurance

Generally speaking, the sooner you fund a long-term care insurance plan, the lower the costs will be since the issuing company can grow the funds before you utilize benefits. While some individuals fund a long-term care plan before 65, many do not fund one until they are 65 or older.

Your next steps for long-term care insurance

The points discussed in today's blog post should serve as a starting point as you navigate understanding the appropriate type of long-term care protection for your needs. If you are unsure whether your retirement plan should include long-term care insurance or which kind to select, we are here to help.

At Lundeen Abrams Advisors, we regularly help our clients understand the risks and costs they may face as they enter or continue in their retirement journey. For many of our clients, this means adding long-term care insurance to their retirement plan as a safety net, ensuring that other assets earmarked for other expenditures remain safe should unforeseen care needs arise later in life.

So, please reach out to us today and schedule a time for us to learn about your retirement dreams and how long-term care insurance can help you live them to the fullest.