November marks National Long-Term Care Awareness Month, a nod to aging and the possibility of needing extended care later in life. Whether at home or in a facility, the costs can be substantial and quickly reshape even the most carefully built financial plan.
Nearly 70% of Americans over 65 will require some form of long-term care during their lifetime. With nursing facility costs now exceeding $100,000 per year and in-home care often not far behind, a single health event can cause a sudden, lasting draw on resources.Without preparation, long-term care expenses can:
- Accelerate withdrawals from investments, eroding portfolios, and triggering taxes.
- Reduce or eliminate assets intended for heirs or charitable goals.
- Shift financial and emotional burdens to family members.
- Limit flexibility and choice in the type or quality of care received.
In short, inadequate coverage (whether from insufficient savings, lack of liquidity, or no insurance protection) can threaten the stability of an entire financial plan. Long-term care considerations should be modeled alongside retirement income, healthcare, and estate planning goals to understand how different scenarios might affect outcomes.
Long-term care involves a variety of support services designed to help people live as independently and safely as possible when they can no longer perform everyday activities on their own. Statistics show that 80% of at-home caregivers are unpaid family and friends. This can weigh on loved ones emotionally, physically and financially. Oftentimes, it may need to be supplemented by formal caregivers who are paid for their services. With needs ranging from never needing care to 20 years of cognitive impairment (and everything in between), it is impossible to plan for all potential costs.
For some clients, self-funding through dedicated assets makes sense. For others, transferring part of the risk to an insurer provides greater financial efficiency and peace of mind. Traditional LTC insurance is an effective hedge that covers a significant portion of the median need of 3 to 4 years of care. However, premiums can increase over time and its use it or lose it feature means that there is no payout if LTC is not needed. Alternately, there are many innovative insurance options available, and we typically see insurance used in conjunction with other vehicles in the long- term care plan.
A newer approach is a traditional life insurance policy with a LTC rider attached to the contract. This rider allows you to spend down the death benefit tax free to cover long-term care costs. It effectively reduces the death benefit dollar for dollar, and any unused death benefit passes on to your heirs tax free upon your death.
Example: Jim purchases a $500,000 life insurance policy that pays the death benefit to his spouse and/or children tax free upon his death. If Jim needs long-term care at home, an assisted living facility, or a nursing home, he can start to draw down the death benefit tax free to cover his long-term care costs at a maximum rate of $20,000 per month for 25 months. Alternately, Jim, can use less which will spread the benefits out for a longer time period ($15,000/month for 33 months, $10,000/month for 50 months, etc.). Upon Jim’s death, whatever has not been used for LTC costs would go to his beneficiaries tax free. In this example, if Jim used $300,000 for his long-term care costs, his beneficiaries would receive $200,000 tax free upon his death.
Another option is the use of a LTC annuity. This is often used when we are repositioning assets, e.g., you may have an existing annuity that can be exchanged for a LTC annuity or CD’s or other cash equivalents that can be used to purchase a LTC annuity. What makes the annuity option so attractive is that you retain the liquidity features of a traditional annuity or a CD or other cash instrument. These annuities also provide the potential for fixed income growth. As the account value grows, so too does the pool of money long-term care.
Example: Mary moves $100,000 from a CD to a Long-Term Care Annuity. Immediately, the $100,000 account value creates a 3x benefit of $300,000 to cover long- term care costs that can be used equally over 72 months tax free. If the annuity value were to grow over the next 20 years to $210,000, the benefit pool would grow to $630,000. At any point, Mary has access to her account value for unforeseen expenses or income needs. If Mary never needs to utilize the contract for long term care expense, her beneficiaries would receive the remaining account value.
Notably, the insurance contracts described above typically appoint a LTC coordinator that will work with the family to help develop a plan of care. This is a valuable benefit because it lessens the burden and anxiety that goes with the process.
The best time to think about long-term care is before you need it. Planning for the possibility of long-term care gives you and your family time to learn about services available in your community and what they cost. It also allows you to make important decisions while you are still able. The right approach depends on personal priorities, tax considerations, and family circumstances. Rockland Trust is here to guide you. With our financial planning and insurance expertise, we help clients evaluate their exposure, understand funding options, and implement strategies that protect both their lifestyle and legacy. Please reach out to your Relationship Manager for more information.
