The Long-Term Care Dilemma

With the many Baby Boomers reaching their golden years it is expected that the cost of long-term care (LTC) costs could reach $5.6 trillion nationwide by 2047. The best estimates is that 40% of the aging population will need some sort of nursing home stay for either rehabilitation or end-of-life care. According to a recent study by pricewaterhouseCoopers, the average lifetime cost of long-term professional services was $172,000 per person in 2016.  Unfortunately, very few people are prepared to deal with this risk as less than eight percent of people have long-term care insurance and only ten percent of people in the U.S. have a long-term care plan in place. This lack of planning is extremely troubling because long-term care is a very real and expensive risk as nearly 70% of people will need long-term care at some point and the cost of one year in a semi-private nursing home can exceed over $150,000. With the costs of these services rising and scarce options for the non-wealthy, it is important to consider some of the options that exist for funding LTC expenses.

Hybrid Plans

While LTC insurance plans exists, they are often are expensive and limited in scope. But they are not the only option out there. A common way of financing LTC expenses is through “linked benefit” or hybrid plans. One such product is a life insurance plan with a quality of life rider. This popular option give the policy owner access to the majority of the death benefit if their quality of life reduces to the point of needing long-term care services. If no long-term care is needed, then the entire value of the policy is paid out to the beneficiaries. If the LTC expenses to do drain the life benefit, then the remainder of the life benefit is paid out to the beneficiaries upon death of the policy holder.

Life Insurance Policies

A lot of life insurance policies have options to get money out to cover long-term care expenses. The first option can only be used if the policy has a cash value. Some or all of it can be accessed through withdrawals or loans. A second option is to sell the policy as a life settlement. This option can give the policy holder up to three time as much as the cash value option. Third option is the viatical settlement. This is virtually the same as option two, but is done when the policy holder is terminally ill. The value is determined by their policy benefits and life expectancy.


An annuity is a policy sold by insurance companies that are designed to grow funds through investments and then provide a stream of income once the policy has matured or “annuitized”. These policies generally do not allow funds to pass tax free to your beneficiaries, but many are including tax qualified LTC benefits. Some insurance companies offer fixed annuities with long-term care riders, which enable you to invest the money you might have saved for long-term care into a product that provides a fixed income but also will provide higher payouts if you need long-term care benefits. These policies often give a much higher annuity payment when LTC is needed and these products can be purchased in a single lump sum avoiding constantly increasing premiums.

The major cause of hesitation among purchasers of standalone LTC policies is that if you do not use the benefit, you do not get a payout. The options listed here solve that dilemma while also serving you and your loved ones in time of need. Thanks to the Pension Protection Act of 2016, you may be able to exchange any existing life insurance or annuity policies for those that include long-term care benefits.

Each product has a lot of options that can be difficult to navigate on your own. Before you make any decisions, you should talk to you benefit consultant to see what your current policy looks like, and if you can make any adjustments.