Underrated and underutilized: A look at long-term care insurance

The U.S. has one of the highest costs of healthcare in the world. One trip to the hospital could mean thousands of dollars in debt, even if the patient has insurance — over time, long-term care could whittle away at their retirement.

This is where long-term care insurance plans come in. For those with chronic illnesses or disabilities, they may need medical, social, housekeeping or rehabilitation services in order to live as independently as possible. As opposed to the standard health plan, long-term care insurance typically provides coverage for care patients receive in an assisted living facility, nursing home and even their own home. 

An estimated 70% of Americans over the age of 65 are expected to need long-term care, and yet only 10% have long-term care coverage, according to insurance providers HCG Secure. Whether due to a lack of awareness or a lack of the benefit altogether, more Americans need this coverage, says Todd Parker, partner at Lenox Advisors, an insurance and wealth management firm. 

Read more: As boomers hit retirement, is long-term care insurance a must-have benefit?

“If all of a sudden one or both of the spouses get injured or sick, that could change the entire trajectory of their lives,” he says. “It’s really important to protect income, and that’s what long-term care insurance is designed to do.”

Parker underlines that an effective long-term care plan should not only protect the member’s retirement assets, but the livelihoods of their spouse and children who may serve as their caregivers. 

In 2021, insurance provider Genworth Financial estimated that at-home aid would cost $61,776 per year, while a nursing home would cost between $94,900 and $108,405. These prices will keep climbing as inflation drives healthcare costs up each year. 

And as the elderly population in the U.S. grows, long-term care has caught the attention of state legislators. In fact, Washington has already adopted a public trust for long-term care. Employees are taxed at a rate of 58 cents per $100 of income, with the guarantee that they will receive $36,500 once they work and contribute to the trust for at least 10 years. However, that amount may not even cover one year’s worth of care, notes Angie LeMar, partner at Lenox Advisors. 

Read more: Employee financial wellness is at an all-time low, Bank of America finds

“Programs like that have an inherent limitation,” she says. “But it does shine a light on not only the importance of long-term care but offering it via an employer.”

Washington’s new policy did push people to look for their own plan in the insurance marketplace in the hopes of finding better coverage, but like healthcare plans, long-term care plans should be a table-stakes benefit, argues LeMar. 

Long-term care insurance can be intimidating, and no worker wants to pay for another premium. Parker advises employers to consider the plan as a competitive advantage in their attraction and retention strategies, especially if their workforce is on the older side. In other words, the plan shouldn’t add more financial strain.

“When an employer can cover employees that would have a hard time getting it otherwise, that’s a huge benefit,” says Parker. “If they’re applying for multiple jobs, and one company has a whole lot of voluntary benefits that are going to be important to that person, they might look at that job interview a little bit differently.”

Read more: The retirement savings race gap is wide and growing

LeMar encourages employers to work with an adviser they trust to obtain a plan that’s best for their workforce. Then, invest in communication and education around long-term care insurance, whether that takes the form of team lunches, webinars or emails. Choose what employees best respond to, and don’t be shy, says LeMar. 

Parker and LeMar emphasize that an employer’s financial wellness strategy is incomplete without long-term care insurance. Employees should be aware of that too.

“I’ve seen claims, I’ve seen a lot of things happen on the other end,” says Parker. “It just reminds you that life is fragile, and protecting your income and protecting those who care about you is really important.”