We begin our journey as infants needing care from others to survive. They feed, change, bathe, and clothe us, among other things. As we become more self-sufficient, we can do these “activities of daily living” (ADLs) ourselves. Unfortunately, as we get older, these “activities of daily living” become more challenging for us to do ourselves, and we again become reliant on others. As this natural progression occurs, long-term care may become necessary.

Losing one’s independence is not something anyone wants to think about, but it is a reality of life. Therefore, you need to be prepared for this potential challenge, so the physical and financial burdens do not fall on your loved ones.

The good news is there are skilled workers who can help provide care, either in the home or at a facility. The bad news is the cost of long-term care is not cheap. Prices range from $3,000-$12,000/month, depending on many factors, including the level of care required, geographic location, and whether care is received in-home or at a qualified facility. Typically, health insurance such as Medicare does not pay for this type of care, so the burden falls on the family. These high costs can cause financial hardship if not planned for properly. Money that you have spent your entire life accumulating may go to long-term care instead of to your family. If a spouse is still alive, they will carry the cost of maintaining the house, everyday living expenses for themselves, and the cost of care for their sick spouse. These ‘double costs” can deplete life savings quickly.

So how do we prevent this from happening?

There are typically two ways to protect against this type of financial hardship. The first requires you to transfer all your assets out of your name (typically to a Trust or a child), so you can qualify for Medicaid to help pay for long-term care. There are many rules, such as a “five-year look back on transfers,” that need to be considered, and you will need to give up control of your assets. Also, if you have assets in retirement accounts such as IRAs or 401(k)s, these assets can be problematic, triggering a significant income tax if transferred. We recommend discussing your situation with your financial planner and consider getting an eldercare attorney involved, as these rules vary by state and can be very complicated. Any mistakes can cost you time and money.

The second way to protect yourself from long-term care costs is to buy insurance. This type of insurance comes in several different forms, and a financial planner can help you determine which one fits your situation best. Your options include:

  • Traditional Long-Term Care Insurance
  • Life Insurance with a Long-Term Care Rider
  • Hybrid Long-Term Care Policy

Traditional Long-Term Care Insurance

Traditional long-term care insurance is very similar to your home or auto insurance. You pay an annual premium to “push” the risk to an insurance company. How much of the risk depends on how you design the policy. The bigger the benefit, the larger the premium. Your age and health also play into the cost of the policy. Unfortunately, the annual premium is not guaranteed, and the price is not cheap. Besides the cost, there are other potential concerns with this type of policy. With State approval, the insurance company can raise your annual premiums, and if you never need the benefits, you typically don’t get any of your premium dollars back.

Life Insurance with a Long-Term Care Rider

Life Insurance with a long-term care rider allows an individual to access the death benefit of a life insurance policy in advance to pay for long-term care expenses. Any monies used for long-term care will reduce the death benefit. Still, unlike traditional long-term care policies, you will receive some benefit – either long-term care benefits or a death benefit, assuming you pay the premiums and keep the policy in force. Long-term care riders are typically available with permanent life insurance policies such as Whole Life, Universal Life, or Variable Universal Life. Depending on your age and health, these policies can be expensive, so you want to make sure the policy fits your budget.

Hybrid Long-Term Care Policies

Hybrid long-term care policies are becoming increasingly popular. They combine the benefits of life insurance and annuities with long-term care benefits. An individual can apply a one-time lump sum premium or pay over a specified period (e.g., ten years). If they do not use the policy, the beneficiary will receive a death benefit equal to or very close to the original premium amount. If benefits are needed, the policy will pay long-term care benefits in excess of the premiums paid and often several times higher. This offers the ability to leverage the premium dollars.

For example, a premium payment of $100,000 can often have more than $325,000 of long-term care benefits available on day one, depending on age and health. The hybrid policy offers the ability to lock in an initial premium (unlike traditional long-term care policies), provides a return of premium upon death, and provides leverage to access increased long-term care benefits well above your premium payments.


When evaluating the potential risks to your financial plan, you must consider long-term care costs. There are several ways to mitigate the risk, and you should discuss these options with your financial advisor to determine what works best for your situation and budget. Remember, the circle of life is inevitable, but having the means to lighten the burden can make all the difference in the world to your loved ones.