Someone turning 65 today has an almost 70% chance of needing some sort of long-term care.1
According to the AARP, 48 million Americans are unpaid family caregivers.2
Planning now can help shield your family from the stress and financial strain of being unpaid caregivers.
Throughout our lives, we do our best to maintain our health. Unfortunately, despite our best efforts, some of us end up encountering health issues. While some cases are mild and can be easily treated, others are more serious and require long term care. In fact, someone who turns 65 today has an almost 70% chance of needing some sort of long-term care, and that burden will commonly fall on your family.1
But it’s not only seniors who need care. You may need care at any age due to any number of factors, including illness, injury, stroke, accidents, cancer, heart attacks, paralysis and more. This article will offer some practical advice on how you can pay for long term care so you can avoid burdening your family with the financial strain.
The number of families with a family member who requires caregiving is growing. According to the AARP, 48 million Americans are unpaid family caregivers.2 The costs and time your family may incur when caring for you are extensive and can produce financial and emotional strain on your family through out-of-pocket costs and time away from work. On average, the annual out-of-pocket costs for family members providing unpaid in-home help to loved ones is $7,242.3 Family members may help cover costs such as rent or mortgage payments, home modifications, medical costs, and medical equipment. Family members may also contribute funds to the costs of in-home care, assisted living facilities, or nursing homes, which dramatically increases those expenses.3
Who are caregivers?
An unpaid caregiver is loosely defined as anyone who may “look after” you if you experience chronic illness or permanent or temporary disability. This includes activities like bringing you groceries, taking you to doctor appointments, etc. Although many people are caregivers, they wouldn’t necessarily call themselves that.
The financial and emotional strain on unpaid caregivers increases as conditions advance and the family member can no longer provide the needed care on their own. Caregivers must find funds to pay for in-home care or possibly nursing homes. And make no mistake about it — the financial burden is real.
The cost of in-home care services
A financial strain measure shows family caregivers are spending, on average, one quarter (26%) of their income on caregiving activities.3
In-home care is the most expensive kind of care, often more than assisted living or nursing home care. Full-time in-home care averages $4,583 per month, assisted living averages $4,300 per month, and 24/7 in-home care costs $17,472 per month.4 That number can vary dramatically depending on your zip code. Learn the average costs of long-term care in your area.
Nearly half (47%) of caregivers have experienced at least one financial setback due to their caregiving. These setbacks include dipping into personal savings, cutting back on their own spending, and reducing how much caregivers save for their own retirement.3
Beyond the economic impacts of unpaid caregiving, there’s an emotional toll as well. Some of the most common sacrifices unpaid caregivers make include cutting back on leisure activities such as dining out and vacations.3 Without taking enough time for themselves, unpaid caregivers remain under incredible stress that can have long-term consequences on their own health.
Paying for long-term care
There are numerous ways to help to shelter your family from some of those stressors and financial strains as you age, many of which require planning now. This isn’t a comprehensive list, but it does provide a wide range of options for you to consider.
Long-term care insurance
A long-term care insurance policy helps cover the costs of that care when you have a chronic medical condition, a disability, or a disorder such as Alzheimer’s disease. Most policies will reimburse you for care given in a variety of places, such as your home, a nursing home, an assisted living facility, or an adult day care center.5
The rates you pay depend on a variety of things, including your age and health, gender, marital status, insurance company, and amount of coverage.
For example, a single 55-year-old man in good health buying new coverage can expect to pay an average of $1,700 a year for a long-term care policy with an initial pool of benefits of $164,000. Those benefits compound annually at 3% to total $386,500 at age 85. For the same policy, a single 55-year-old woman can expect to pay an average of $2,675 a year. The average combined premiums for a 55-year-old couple, each buying that amount of coverage, are $3,050 a year.5
Life insurance with living benefits
Life insurance with living benefits basically allows you to accelerate a portion of your death benefit early if you meet certain qualifications, letting you use the funds to pay for whatever you wish. Those qualifications would need to be certified by a licensed healthcare practitioner as being chronic illness, critical illness, and terminal illness, depending on your policy’s provisions. The money you receive while living is deducted from the death benefit by a discount factor the company uses to determine the death benefit payable to your beneficiaries. Life insurance policies with living benefits vary, so make sure to consult a financial professional and read your contract carefully.6 The actual benefit paid to a policy owner may be less than the amount that is accelerated because the amount is discounted to reflect early payment of the policy’s death benefit. There may be applicable administrative fees, per request.*
The following are some examples of types of life insurance with living benefits.
Life insurance with a chronic illness rider
These living benefits riders pay out a benefit if the policyholder becomes incapacitated or disabled with a qualifying illness for an extended period.
Life insurance with a chronic illness rider lets you take a specified amount from your death benefit towards the cost of care if you cannot complete at least two activities of daily living (ADLs) without assistance. There are six activities that are considered ADLs: eating, bathing, getting dressed, toileting, transferring, and continence.7
Life insurance with a critical illness rider
Life insurance with a critical illness rider pays a benefit if the insured is diagnosed with a covered condition, such as heart attack, stroke, renal failure, and some cancers.6
Life insurance with a terminal illness rider
Life insurance with a terminal illness rider pays a portion of the death benefit for a terminal condition that will result in death within 6-24 months, depending on the policy.6
Annuities
Annuities may help you pay for long-term care services. With an annuity, an insurance company will pay you regularly over a specified period of time in exchange for a single payment or a series of payments. This could be a set monthly benefit or possibly even offer payments for life, depending on your policy.8 Although people of all ages can need caregiving, annuities may be one of the best options for some seniors because of these regular payments.A financial professional can help you learn more and determine if an annuity may be right for you.
Irrevocable Trusts
Some people try to pay for their long-term care by qualifying for Medicaid. Establishing an irrevocable trust may help to shield some of your assets from consideration in your Medicaid determination. Remember that this trust is, by definition, irrevocable, meaning its terms can’t be modified, amended, or terminated without the permission of the grantor's beneficiary or beneficiaries. The assets in the trust are no longer yours and are at the behest of the beneficiary of the trust.9
It’s important to note that Medicaid has a five-year lookback period so you would need to create the trust more than five years before you apply for Medicaid.10
Reverse mortgages
For those 62 and older who want to stay in their homes, a reverse mortgage converts some of your home equity into cash for you to use on expenses of your choice. This money is usually tax free and generally will not affect your Social Security or Medicare benefits. When you are no longer living in your home, the loan on your home equity must be repaid. If, for example, you need to move to a nursing home, you may have to sell your home to repay the loan.11
As with most loans, you can expect to pay origination fees and closing costs when you have a reverse mortgage. And, because your interest rate is variable, you can expect it to change over time. It’s always a good idea to talk to a professional when considering a reverse mortgage.
By learning more about the options to help you pay for your own care, you’re better equipped to make the best-informed decision on the right choices for you and your family. For even more insight and information, you can check out Senior Caregiving 101: An Introduction.
*Amounts payable under certain riders vary based in part on the nature and severity of the insured’s health condition and the insured’s remaining life expectancy at the time of the acceleration as determined by the company. You should consider whether your life insurance needs will still be met.
Things to consider
Even though it may seem daunting, putting a plan in place now can offer reassurance to you and your family members.
Consider life insurance with a chronic condition rider as one option to cover the costs of caregiving.
Reviewing your caregiving plan with a financial professional can help you determine the best options for you and your individual situation.
Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical or financial advice or guidance. Please consult your personal independent professionals for answers to your specific questions.
