Should You Have Long-Term Care Insurance?

Most retirees will need long-term care at some point, and many are surprised to discover it’s not covered by their health insurance. November is Long-Term Care Awareness Month, and it’s a good time to consider whether long-term care insurance makes sense for you.

You’ll Probably Need Long-Term Care Services

Long-term care refers to services to support personal care and daily activities, such as bathing, dressing and eating. Care may be provided in a nursing home, assisted living facility, or within a person’s home.

According to the Administration for Community Living (ACL), 60% of people will need long-term care. If you’re currently 65, there’s a 70% chance you’ll need long-term care services at some point, according to Yale University. Unfortunately, even though most people will need long-term care, it is an expense that is often overlooked in retirement planning.

The Cost of Long-Term Care

According to CareScout, The monthly median cost for homemaker services is $6,292 as of 2024. A month in an assisted living community costs $5,900 on average, and a semi-private room in a nursing home costs $9,277.

Don’t expect your health insurance to cover this expense. Although some long-term care involves medical care, the ACL explains that most long-term care is not medical in nature. This means it’s typically not covered under Medicare or private health insurance plans. Medicaid will cover long-term care, but only if you meet your state’s income and resource requirements.

Long-Term Care Insurance

Health insurance won’t typically cover most long-term care, but long-term care insurance is available, both as a stand-alone policy and as a hybrid life insurance policy.

Long-term care insurance may seem expensive. According to the American Association for Long-Term Care Insurance, a single 60-year-old man paid $1,200 a year for $165,000 level benefits, while single 60-year-old woman paid $1,9000 for the same policy, based on 2024 averages using the “select” underwriting tier. Those who were older or had known health issues may have paid more.

However, when you compare the cost of insurance to the cost of long-term care, coverage can make sense. When you consider the potential tax incentives, coverage can become even more attractive.

HSA Eligibility and Tax Deductions

You can make long-term care insurance more affordable by leveraging savvy financial strategies that reduce your tax burden. You have two options:

• Use your HSA. You can use HSA funds to pay for qualified long-term care insurance premiums, up to the annual limit, which increase based on age. Verify that the policy meets the requirements to be considered qualified.
• Deduct your premiums. You can deduct qualified long-term care premiums using Schedule A (Form 1040), itemized deduction, or the self-employed health insurance deduction when you file your taxes. As with the HSA strategy, the policy must meet the requirements to be considered qualified, and the amount you can deduct is subject to annual limits, which increase based on age.

Will Long-Term Care Crack Your Nest Egg?

Consider if you could be facing a situation similar to these:

• A couple retires at age 65, and they calculate that they have enough savings to cover a 30-year retirement. Then the husband’s health takes a turn for the worse, and he needs more assistance than the wife can provide. They have to pay for long-term care services, and over the next five years, they see their savings dwindle much faster than expected. The wife is still anticipating a long life, but she is no longer certain that she’ll have enough savings to cover her entire retirement.
• A man retires with a comfortable nest egg. He also owns a house that he hopes to leave to his son. Then he develops mobility issues and can no longer care for himself. His son is busy working and can’t afford to take time off, so he has to pay for long-term care services. He can’t afford the high cost, so he has to take out a reverse mortgage on his house. Now he will not be able to leave the house to his son as he had hoped.

Without proper planning, the cost of long-term care can disrupt retirements and legacies. As the population ages and demand for long-term care increases, the cost of care is likely to rise. If you have not made plans for your future long-term care needs yet, find out if a long-term care insurance policy makes sense for you.

Heffernan Financial Services can help you review your options. Contact us.