Exploring Alternatives to Long-Term Care Insurance

By the time you turn 65, there is a 70% chance you’ll need some kind of long-term care service. With rising inflation and healthcare costs, seniors will need to consider buying some type of long-term care insurance to help with these future expenses.

Whether it's traditional long-term care insurance or a hybrid approach, it's important to learn about all the various options available, including alternatives to long-term care insurance, so you can decide which option best fits your care planning needs.

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  • Long-Term Care Protection
  • Nursing Home Protection
  • Terminal Illness Protection

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What Does Long-Term Care Insurance Cover?

Long-term care insurance (LTCI) provides financial protection for elderly individuals who need long-term help completing 2 or more of the daily living activities like bathing, eating and getting dressed.

LTCI plans can help pay for services such as:

  • Nursing home care
  • Assisted living
  • Adult daycare
  • Home health care

Depending on the type of policy, there may also be additional benefits covered including:

  • Routine checkups
  • Therapies
  • Medication

Long-term care insurance will not only support seniors receiving care but, depending on the type of LTCI plan, some also help if family members are the ones providing the care. Many policies offer benefits like respite care, during which the primary caregiver can take time off and still get compensated.

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How Expensive Is Long-Term Care Insurance?

Long-term care insurance can be very expensive, ranging from $950 to $7,225 per year or higher for an individual. The exact cost of a policy depends on multiple factors, including the following:

  • The policyholder's age
  • The policyholder's health status
  • The policyholder's gender
  • The benefits included

The older you are, the more expensive your policy will be. That’s because as you age, you are more likely to have health problems and care needs which means it’s also more likely the insurance company will have to pay out a claim.

How healthy you are also factors into the cost. There are some health conditions like dementia, that will disqualify you from coverage because the risk of care is too great for the insurance company. Like with any insurance product out there, the younger and healthier you are when you buy, the lower the cost.

When it comes to long-term care insurance, women pay higher costs for coverage than men. The reason is because on average, women live more than five years longer than men and file more claims, driving up the cost.

Finally, the amount of benefits your policy has will also affect the price. A policy that only covers nursing home costs will be more affordable than one that also extends coverage to home care and contains inflation protection in the policy.

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Are There Any Alternatives to Long-Term Care Insurance?

Traditional long-term care insurance is one way to ensure future care expenses will be funded, but there are also alternatives to long-term care insurance available. It’s important to know about and understand all the options so you can decide what type of policy will be best suited to meet your needs and budget.

Get Short-Term Care Insurance

Short-term care insurance is similar to long-term care insurance in the fact that it typically covers in-home care, assisted living and nursing home facilities when assistance is needed with daily living activities. One of the main differences is it only provides benefits for 12 months or less.

Unlike long-term care insurance, applications for short-term care insurance are much shorter and typically no medical exams are required so it could be a good option with people that have existing health conditions that could prevent them from getting traditional long-term care coverage. It's also more affordable due to its limited time period.

Designed to help cover gaps in Medicare, short term care insurance is a good alternative for people who require care for a limited time and have a tighter budget.

Be Insured Through a Group Plan

If your workplace offers long-term care insurance, you may want to consider enrolling into the plan. Many times there is a discount involved which means cheaper price for you, no medical exams are required and the policy is portable. This means you get to keep your coverage even if you leave the company.

Just like you use 401(k)s to save for retirement, if group LTCI is provided at your work, it should be considered. It's another way you can ensure your financial future and lifestyle will be protected.

Get Critical Care Insurance

Critical care insurance is a limited policy that provides protection if you end up with a critical illness such as cancer, have a stroke or heart attack or require an organ transplant. This insurance will provide money in a lump sum that can be used for any expenses you have during your illness. There are no restrictions on how the money is used. However, this coverage is not for everyone. You cannot have a pre-existing condition and there are limits to how much coverage you can get which means it may not provide enough funds to cover your expenses.

This type of coverage is more affordable than long-term care insurance but it’s important to keep in mind that it may not provide the comprehensive coverage you need when you think about your future and what type of care you may need.

Purchase an Annuity With a Long-Term Care Rider

An annuity is a type of insurance contract to which you pay either monthly or as a lump sum. The money will grow tax-deferred and will provide guaranteed income for you down the road. Some annuities have the option to add a long-term care rider to the contract. With this in place, you can begin receiving payments when you need long-term care services.

A long-term care annuity could provide the best of both worlds - guaranteed retirement income and money for long-term care expenses if you need it. It’s also a great alternative for people who do not qualify for long-term care insurance due to pre-existing conditions.

One downside is the potential to have to pay a large upfront premium to get covered. It could be challenging if you do not have the cash upfront, forcing you to possibly sell off other investments to pay for it. There also could be taxes you will have to pay once you start receiving funds so it's always a good idea to speak with your tax advisor before making this type of purchase.

Think About a Hybrid Policy

Hybrid policies can be a great alternative to traditional long-term care insurance. This type of policy combines life insurance with a long-term care rider creating an overarching plan. With a hybrid long-term care policy, the policy’s death benefit is used to pay toward care services you may need in the future. There is a maximum amount of funds you can withdraw, leaving the balance for your beneficiaries.

Some additional benefits include payments that remain the same. Unlike traditional long-term care that have rates that increase over time, because this is a life insurance policy, your payments will never change and some hybrid policies offer discounts if you and your spouse purchase together.

The downside with this type of policy is the cost. Because this combines life insurance with long-term care protection into one policy, it’s more expensive than a stand alone long-term care product. Also, not everyone will qualify. Some hybrid policies require medical underwriting, so your cost and ability to get coverage will depend on your current health status.

Consider Accelerated Death Benefits

There are special features that can be built-into life insurance policies that allows access to money if a person is diagnosed with a Chronic Illness, Terminal Illness or require permanent residence at a nursing home facility. These features are known as Accelerated Death Benefit riders. They allow you to leverage your life insurance policy while you are still living.

Having a life insurance policy with Accelerated Death Benefit Riders included is a very simple and affordable way to help protect against the high costs associated with long-term care.

With most long-term care insurance plans, if you don’t use it, the money stays with the insurance company. Since this long-term care alternative is a life insurance policy, if you pass away while the policy is still active, any unused portion goes to your beneficiaries, tax-free.

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Other Long-Term Care Options

Insurance and annuities are not the only alternatives to help pay for long-term care. There are other options to consider if purchasing long-term care insurance protection does not fit your financial situation. What’s important is having a plan in place, no matter how you decide to fund your future care needs.

Here are some additional ways you can make sure you have a way to help pay for longer-term care services if you need them.

Sell Your Life Insurance Policy

If you own a life insurance policy, you may be able to sell it to help pay for long-term care costs. This is sometimes referred to as a long-term care settlement. By doing this, you are liquidating your policy for cash that can then be used for care services needed.

Keep in mind, by selling your life insurance policy, you will no longer have that financial protection in place for your beneficiaries when you die. Another thing to keep in mind is the possible tax implications relating to the gain you receive from selling your policy. It’s always a good idea to consult with a tax advisor before making a decision like this.

Use Medicaid

Medicaid is an option only for those that have very little savings or retirement income and need services beyond what family can assist with. However, it’s important to understand that although Medicaid may provide free services, your options, benefits and choice of facilities for care are extremely limited.

Before you go this route, make sure you are fully aware of the qualifying criteria involved and the services available so you know exactly what type of coverage you will be getting.

Resort to Your Savings

Many older adults do not want to pay for long-term care insurance even when they can afford it. Why? These individuals fear paying money into benefits plans that they may never use.

Using your savings to pay for long-term care eliminates this problem. However, people with limited savings should proceed with caution. Long-term care costs $31,000 to nearly $100,000 per year, which can quickly drain your savings.

Rely on Your Family or Friends

As a last resort, you could consider asking a family member or friend to help you with any long-term care services you may need.

There are some instances where family caregivers can even get paid for their services to help alleviate the financial burden. They would have to check with Medicaid's Self-Directed Services program or a state-served program to see if they qualify for financial assistance.

If this is an option you are considering, it is important to understand the financial and emotional toll caregiving can take. It’s a huge sacrifice to make. That’s why it's always a good idea to make sure to review all the long-term care options available before determining if this alternative is right for you.

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The Bottom Line on Long-Term Care Insurance

Long-term care insurance and all the alternative options available can help protect you and your family from the financial burden of these high care costs. No matter what type of protection you get, the longer you wait to get this important protection in place, the more expensive it will be.

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Our content is created for educational purposes only. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Everdays encourages individuals to seek advice from their own investment or tax advisor or legal counsel.


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