7 out of 10 seniors will require some form of LTC for an average 4 year period, if they are not able to perform 2 out of 6 ADLs. LTC costs $50-$100K a year without LTC insurance.
The life expectancy in the US has been constantly improving. It used to be 62 back in 1935, and now it is 76 for males and 81 for females. 1 out of 4 couples will live into their 90s. Life expectancy also increases by one year every decade due to advances in medical care. However, longer life expectancy also means that now more people are prone to Long-Term Care (LTC) disability. In fact, 7 out of 10 seniors over 65 will need some form of LTC.
Many don’t realize that providing LTC affects two people, the disabled and the caregiver, because providing LTC can be a full-time job in itself. 3 out of 4 caregivers are woman, and often close family members. One qualifies for LTC benefits if one is unable to perform 2 out of 6 ADL (Activities of Daily Living). ADL includes bathing, dressing, using the toilet, eating, transferring in/out of bed, and continence. Severe cognitive impairments such as Alzheimer’s or Dementia are considered a LTC disability as well.
Here are the healthcare cost factors. An average 2-month hospital stay will cost $500K. A healthy 65-year old couple will spend about $275K in healthcare related costs over their remaining lifetime.
Roughly half the people who receive LTC get it at their home. LTC costs $50K to $100K a year depending on whether you are receiving care at home, an assisted living facility or a nursing home. The average length of care required is 4 years. Women stay on an average 1.5 years longer on LTC than do men because of their higher life expectancy. Based on current figures, the total average LTC cost is about $228K. Healthcare inflation is double the normal inflation, which is around 2%. At this rate, LTC cost could double in 20 years.
Unfortunately, Medicare does not cover LTC except for Skilled Nursing care for up to 100 days. Medicaid will require spending down of all assets (except 1 home, 1 car, $100K in cash and $2,500 in monthly income) before LTC is covered.
An LTC insurance policy will provide guaranteed inflation-adjusted tax-free LTC benefits if one qualifies for LTC. Alternatively, some IUL policies have an LTC rider that covers LTC costs. LTC benefits qualify for IRC 7702B tax benefits (see “LTC vs. Chronic Illness Benefits” for more details). This allows a LTC benefit below the HIPAA per diem limit of $370/day to be non-taxable. A detailed view of a standalone LTC policy is provided in our blog “How A LTC Policy Works.”
We specialize in tax-free retirement strategy and investments such as IUL, Annuity and LTC. Prefer a quick and complimentary consultation? Just email us at Karthik@FinCrafters.com