The Sandwich Generation & Long-Term Care Insurance

Clifford PendellWritten by Clifford Pendell
multigenerational family sitting on dock above lake

Long-term care insurance (LTC insurance) is one of the most prevalent concerns among the “sandwich generation”, the many Americans in their 30s and 40s who are caring for their aging parents while also supporting their own children.

Being “stuck between” paying for your parents’ and kids’ care needs can be stressful and consuming. We’re guessing you probably don’t want your parents moving in with your family when they’re in their 70s, nor do you want to be paying for a nursing home and college tuition simultaneously.

In this article, we’ll explain how long-term care insurance can help relieve some of the financial burden, and how to find the right LTC policy for your parents.

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    What is Long-Term Care Insurance Used For?

    Long-term care insurance is a very niche type of insurance coverage for the assistance an elderly person might need with activities of daily living (ADLs). Essential to quality of life, ADLs include:

    • Walking
    • Bathing
    • Grooming
    • Toileting
    • Eating
    • Household tasks, etc.
    Since Medicaid, Medicare, and health insurance generally do not cover ADL assistance costs, long-term care insurance is sold as a standalone product, or as an add-on to life insurance. We can’t stress enough that long-term care insurance is not a replacement for health insurance, but merely an addition to any existing health coverage or benefits you might have.

    According to the U.S. Department of Health & Human Services (HHS), the number of individuals using paid long-term care services in nursing homes, assisted living facilities, and home care programs will likely double from 13 million in 2000 to 27 million by 2050.

    Pair this with New York Life’s estimate that the average annual cost of a nursing home is $96,000 and rising, and you can see why so many families rely on LTC insurance to pay for the high costs of long-term care. Even assisted living or home care can push $50,000 per year.

    How Does Long-Term Care Insurance Work?

    Long-term care insurance reimburses the policyholder a pre-selected daily amount for long-term care services relating to ADLs. The pre-selected number is called the daily benefit amount, which we will discuss in greater detail shortly along with several other components in a long-term care policy.

    We usually recommend buying long-term care insurance on its own as opposed to seeking a long-term care rider (add-on) in a life insurance policy. Life insurance with an LTC rider is only sold in cash value whole life policies, which are costly and even risky. Learn more about the pros and cons of whole life insurance here.

    Buying Long-Term Care Insurance for Your Parents

    The best LTC advice we have for the sandwich generation is to purchase LTC coverage on your parents sooner rather than later. The cost of LTC insurance will only rise as they age. The American Association for Long-Term Care Insurance (AALTCI) explains that the mid-50s are the ideal and most cost-effective time to buy LTC insurance. Chances are that window has already passed for your parents, so every year you wait can be costly.

    Nobody wants to plan for their parents’ decline in independence, but the truth is that roughly 70 percent of people need long-term care insurance in their lifetime. According to the Kaiser Family Foundation, roughly 30 percent of the older population with long-term care have three or more ADL limitations and require substantial care.

    It’s also important to note that if your parents begin receiving some form of long-term care, or if they are in poor health, they may not qualify for long-term insurance. Our point in telling you all of this is not to pressure you or make you feel depressed; it’s to convey how advantageous it is to lock in a policy before the need for LTC becomes glaringly apparent.

    Cost Comparison: Long-Term Care Insurance vs. Long-Term Care

    When you’re at a point in your life where you’re trying to build wealth and/or enjoy any disposable income you might have, adding another monthly expense is not something you get excited about. However, the difference in cost between long-term care insurance and long-term care without insurance is massive.

    The cost of an LTC policy with $5,000 per month in benefits for a 65-year old male or female might run from $150 to $250 per month. That’s $1,800 to $3,000 per year—a notable sum, yes, but let’s revisit the stats on long-term care itself:

    • $96,000 per year for a nursing home
    • Average nursing home stay: 2.3 to 2.6 years
    • Up to $43,000 per year for assisted living
    • $28,000 to $45,000 per year for home care
    When we compare the cost of a nursing home vs. the cost of long-term care insurance, we’re pushing nearly a six-figure annual difference. Over the course of the average nursing home stay, you’re coming up on a quarter-million dollars! If you wish to leave behind an inheritance to your kids, failing to secure an LTC policy for your parents can deplete your savings later on, jeopardizing your ability to leave any inheritance.

    Choosing a Daily Benefit Amount

    When purchasing a long-term care insurance policy, you can select how much you will be reimbursed each day for the cost of your long-term care services. This is called the daily benefit amount.

    Going back to the $96,000 per year average nursing home cost, you can expect to pay roughly $260.00 a day for a quality, Medicare-approved nursing home. So, we recommend buying a long-term care policy with a daily benefit amount of $250.00 to $300.00 per day.

    However, if you are living in a region where the cost of living is low, you might be able to get by with a smaller daily benefit amount. Although, Kevin Leinum, owner of Capstone LTC Insurance Services, notes that “most people who have long-term-care coverage wish they had bought more.”
    Part of our job at JRC Insurance Group is to run the calculations for you, so you can make your financial future less of a guessing game and find the peace of mind that LTC insurance is meant to provide.

    What is the Elimination Period in Long-Term Care Insurance?

    Every long-term care insurance policy has what’s called an elimination period, which is the amount of time you must wait before your benefits begin. Most long-term care insurance policies offer a 30 to 180 day waiting period, during which time you are solely responsible for 100% of the cost of the care you receive.

    Selecting a longer waiting period can save you money on the cost of your policy, but understand that the cost of LTC coverage during that period can add up fast if your parents are already in need of ADL assistance. 180 days is half a year, which would cost roughly $48,000 in a nursing home.

    Here’s a two-part rule of thumb for selecting an elimination period: If you don’t have a large savings set aside, it may be advantageous to select a policy with a shorter period. If you’re more concerned with the monthly cost of your coverage and you have an ample amount of money set aside for your retirement, a longer elimination period might suffice.

    Inflation Protection

    If you buy a policy now and do not activate it for 10 or 20 years, inflation can diminish the value of your policy. If your parents seem to be in good health, you can add inflation protection to your policy to account for the rising cost of care.

    Most LTC insurance policies offer 3-5% compounded inflation protection; the higher inflation protection percentage you choose, the higher the cost of your policy. But again, the extra cost can be worth it to know that you’re covered.

    Consider an Additional Long-Term Care Policy for Yourself

    A poll by The Associated Press-NORC Center for Public Affairs Research found that many “sandwiched” individuals are also worried about the cost of their own long-term care down the road. While buying LTC insurance for your parents, you might consider also purchasing a policy for yourself.

    Buying an LTC policy in your 40s or 50s could save you a lot of money compared to waiting until you’re in your 60s or later. Remember, the older you get, the higher the cost of any type of life insurance or long-term care coverage.

    Even if you’re paying for the policy sooner, you’ll be saving yourself from potentially astronomical costs later on. In addition, if your health declines as you get older, you won’t have to worry about being ineligible for an LTC policy.

    Fun Fact: Being Married Helps

    Are your parents married? If so, you’ll be happy to hear that their LTC insurance rates will likely be 10-15% lower than single applicants. If they apply for long-term care insurance together, they might even see a discount of up to 35%.

    The same goes for you and your spouse or partner. This is because the insurance company assumes that spouses are able to care for each other before resorting to a nursing home, delaying an influx of daily care costs with a provider or care facility.

    Shop Around for the Best Long-Term Care Insurance Rates

    When shopping for LTC insurance, the easiest way to get the best coverage and most favorable rates is to work with an independent insurance agent like JRC. Not only will we do all of the work for you; we have a wider reach than any “captive” agent at a big-box company, because we are able to shop multiple carriers.

    We know which insurers cater to which types of applicants, and apply our decades of experience as life insurance agents to help you find the perfect LTC policy for your parents, and perhaps yourself as well.

    Our comparative shopping services are free and we represent 63 top-rated insurers, so why not get a free quote? If you prefer to speak with someone directly rather than clicking the map below, don’t hesitate to call us at 855-247-9555

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    Written by:

    Clifford Pendell

    Clifford Pendell

    Managing Partner and Co-founder

    Cliff is a licensed life insurance agent and one of the owners of JRC Insurance Group. He has helped thousands of families of businesses with their life insurance needs since 2012 and specializes with applicants who are less than perfect health. In his spare time he enjoys spending time with family, traveling, and the great outdoors.

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