The Importance of Planning for the Cost of Long-Term Care

According to the 2023 illumifin Cost of Care Study¹, more than 12 million Americans pay for long-term care services, which can include assisted living, nursing homes or home-based care. These expenses can be quite high and are unlikely to go away once they begin. And, more importantly, they are typically not covered by Medicare or health insurance.

A recent survey from Northwestern Mutual shows that planning for long-term care is often overlooked: 61 percent of Americans think they'll need such care, but only 43 percent have actually planned for it.

 “A sound financial plan should help people to do two things: Build wealth and protect what they’ve already created,” said Kamilah Williams-Kemp, chief product officer at Northwestern Mutual. “Financially planning in advance for a long-term care event is the best way to help ensure that someone’s wishes to age gracefully are followed and funded.”

Here’s what you need to know about this crucial part of retirement planning.

What is long-term care?

Long-term care is a category of services designed to help people meet their health and personal care needs. People typically need long-term care when they are unable to perform activities of daily living on their own. The need for long-term care can sometimes follow an unplanned health setback, such as a heart attack or stroke. But the need typically develops gradually such as arthritis that worsens from mild to severe or cognitive impairments that lead to memory or reasoning loss.

Long-term care services are defined by those that are needed for at least 90 days and can range from short-term assistance to live-in solutions like full-time, in-home care or a nursing home. To meet the criteria for long-term care, a person must need help with at least two everyday activities like eating, bathing, getting out of bed, dressing, and using the restroom.

Unfortunately, the costs for these services are often significant—and once you start using them, they could become an ongoing expense.

How much does long-term care cost? 

According to the 2023 illumifin Cost of Care Study, the cost of long-term care can vary widely depending on the type of care needed and where it is provided. Here are the national averages for different types of long-term care:

• Home-based professional care involves hiring medical or other professionals to provide necessary assistance within the home. Costs for these services can vary based on the certification of your provider.
  Hiring a home health aide can cost around $31 per hour, whereas a licensed practical nurse could cost $130 per visit.
   
• Assisted living facilities allow you to live in your own apartment but receive assistance with activities of daily living. These facilities also have common social spaces for residents to enjoy.
  Depending on the size of the apartment, assisted living costs average $5,463 monthly ($65,558 annually) for a one-bedroom apartment.
   

• Nursing homes offer the highest level of assistance with 24/7 personal and medical support.
  The national average for a private room is $316 per day, which costs about $115,340 per year. A semi-private room is slightly less expensive at $277 per day and $101,105 annually.
   
• Similar to a nursing home, an adult day care center can provide personal and medical support, just not on a permanent basis. Rather than around-the-clock care, an adult day care center can provide support during the day, then the adult can return home on evenings and weekends.
  A medical adult day care center averages $109 per day (or $28,340 per year) and a socially based day care setting costs around $103 per day (or $26,780 per year).

Covering the cost of long-term care

Given the significant costs associated with long-term care, it’s important to plan ahead for how you may cover this expense should you ever be in a situation where you need it. Planning can help give you and your loved ones more freedom to choose the right option without derailing your family’s financial plan should you have a need for long-term care.

Fortunately, there are several options for funding long-term care expenses if and when the need arises.

• Personal assets, such as savings or investments, can be a reliable way to cover these kinds of expenses. You can also liquidate other assets to produce additional cash if needed. Just keep in mind that this option could also result in a large tax bill. It’s important to consult with your financial and tax advisors before selling or liquidating assets.
• Personal income sources including pensions, Social Security and income from stocks may help with regular, ongoing expenses like long-term care costs. You may want to research government health programs, like veteran's benefits and other resources to uncover some potential additional sources of personal income to fund some of these expenses.
• An accelerated death benefit rider available on a whole life insurance policy could be another cost-effective solution to add flexibility to cover long-term care needs. It’s important to note that this option accelerates your death benefit dollar for dollar and proportionately reduces your policy’s accumulated value.
• Hybrid life and long-term care insurance can provide greater coverage for a long-term care event than a life insurance policy with an accelerated death benefit. With this option, qualified long-term care expenses are initially reimbursed by first accessing the policy’s death benefit. Once the death benefit is used, you can access additional funds if you continue to be eligible to receive benefits. If you don't end up needing these funds to cover long-term care, the death benefit value will remain intact, just like a traditional life insurance policy. It's also a permanent product, so it grows cash value.
• Long-term care insurance is specifically designed to cover potential long-term care expenses. This solution may offer the most long-term care coverage for the lowest premium.

Any of these options²—or a combination of them—can put you in a position to cover the range of long-term care costs you may need in the future. Planning ahead and having a strategy for how to cover these potential expenses will put you in the best position to prepare for long-term care needs. If you need help developing a plan that fits your financial situation, consider working with your Northwestern Mutual financial advisor to make sure you’re covered.

¹ 2023 illumifin Cost of Care Study. Published March 2024 by illumifin Corporation.

² All payments made under insurance policies discussed above are subject to that specific policy’s conditions and terms. Be sure to read your policy closely.