Long-term care expenses are a major concern for many retirees, as a large percentage of them are not insured for this risk. But many will need it at some point in their life and it will usually happen at a time when they will not be physically able to work or replace their savings. And an aging baby boomer population has made this issue a critical element of financial planning for clients who can't afford, and frankly can't afford, long-term care insurance.
Christine Benz, director of personal finance at Morningstar Inc., recently compiled a set of statistics that shed light on this issue in a recent article.
High probability and cost
The Benz data paint a rather bleak picture for seniors who can't afford long-term care insurance of any kind. "The percentage of 65-year-olds who either spent at least one night in a nursing home or needed home health care in the past two years increased by 40% between 2000 and 2010, or. 50%. Be impressive – in expensive geographies, the annual cost of care in a nursing facility can be six figures", she wrote.
Benz also wrote that long-term care insurance premiums have increased much faster than inflation over time. The fact is that insurers have been forced to continue to raise their premiums because of the high incidence of claims with this type of coverage. This has made it difficult for many carriers to insure their policyholders on a profitable basis. Policy owners who have paid premiums into these policies for years may now be unable to pay their premiums as rates continue to rise, leaving them without protection and without the money they previously paid over the years. Benz wrote that the cost of some long-term care policies rose as much as 9% in 2016.
And the percentage of seniors needing long-term care also continues to rise. Benz cited statistics from the Center for Aging Research at Boston College, which estimates that 44% of men and a whopping 58% of women need some form of managed care before they die. This alarming news is a major concern for financial planners who must try to help their clients maximize their resources to deal with it. However, the center also explained that the average length of long-term care services is shorter than many think. Men typically need care for only about a year, while the average length of care for women is about a year and five months.But 22% of men and 36% of women need more than a year of caregiving.
A Genworth survey found that the annual cost of long-term care patients run 82, 125 for a semi-private room and 92, 378 for a private room. And the five-year inflation rate for a private room is a whopping 3.5%. Adult child care costs about 17, 680, while an assisted living facility costs 43. 539 $. And a 2010 Employee Benefit Research Institute report shows that only 13.2% of those who receive any form of professional home care have insurance covering it.
Another important factor Benz addresses is the impact of long-term care on caregivers. The Family Caregiver Alliance stated that two-thirds of caregivers are friends and family of the recipients. Nearly three-quarters of these people have experienced job-related stress as a result of their care. In 2015, AARP released an estimate that the total dollar value of care provided by these unpaid workers is about $470 billion.
Benz also wrote that the Kaiser Family Foundation estimated only 8% of all long-term care will receive is paid for by insurance. The Center on Aging Research also stated that only 13% of seniors now carry some form of long-term care coverage.
One possible solution
One way seniors can take to protect themselves from the high cost of long-term care is to buy life insurance that has accelerated benefit users who can pay those expenses. The life insurance industry is quickly accepting this new type of policy as a viable alternative to traditional long-term care policies, which can cost thousands of dollars a year and are still not needed.
The Bottom Line
Seniors need to prepare now for the cost of long-term care, since about half of them will need some form of it at some point. Insurance, savings, and family care may be required to cover these costs. Those who have not made plans in this area must contact their financial advisor to help them prepare for this event.