Most of us will need care as we age
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What you should know about long-term care
Much has been written about the steadily increasing life expectancy of Americans over the past several decades.
A woman who is turning age 65 in 2023 can now expect to live on average to age 87, while a man who is turning age 65
in 2023 can expect to live to age 84.¹ But it’s important to understand that living longer doesn’t necessarily mean living
be
tter. Like many things, longevity can be a double-edged sword. With advancing age also comes an increased likelihood
of a costly healthcare event — one that could rapidly deplete a lifetime’s worth of savings without proper planning.
The case for long-term care planning
Approximately 70% of Americans who are currently age
65 or older will require some type of long-term care during
their lifetime.² Given this strong likelihood that you will need
care, there are a number of important long-term care related
questions that you should address and plan for:
• Who will be your primary caregiver?
• In what setting do you want to receive care?
• How will you pay for your care?
• And how will your care impact your family and finances?
Given the option, a majority of individuals would opt to receive
ca
re in their own home, rather than in a nursing home or
community care facility.
What is long-term care insurance?
Long-term care consists of those services needed to assist you
with the activities of daily living, such as walking, getting out of a
chair or bed, eating, toileting or bathing — either in an institutional
setting or at home. It also includes care related to the supervision
of individuals suffering from cognitive impairments such as
Alzheimer’s and other forms of dementia that render the individual
unable to adequately care for themselves.
Long-term care insurance helps ensure that you’ll have access to
high-quality care should you ever need it, without having to spend
down your life’s savings in order to pay for it. And when it comes to
coverages and payments, you have a growing number of options
available to fit your individual needs and preferences.
How long-term care benefits are triggered
Typically, long-term care policies begin paying benefits
when the covered individual is unable to perform two or
more of the following activities of daily living (ADLs):
• Bathing
• Continence
• Dressing
• Eating
• Toileting
• Transference (e.g., moving from bed to chair)
70
%
of Americans
age 65 and
older will need
long-term care²
Type of care
Average number
of y
ears people
use this type
of care
Percentage of
people who use
this type of care
Any care at
home
2 years 65%
Nursing
facilities
1 year 35%
Assisted
living
Less than
1 year
13%
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What types of long-term care policies are available?
Initially, many people consider “self-insuring” their own
long-term care with the thought that they will set aside
sufficient assets to fund the costs. Considering, however, that
the average annual cost for a nursing home stay is $108,405
(but may be higher in some states),
3
and that the average cost
for a home health aide is $61,776 a year,
3
the concept of self-
funding oen quickly becomes less attractive.
If you’re not comfortable taking that kind of risk, you may
want to consider transferring some of the risk to an insurance
company by purchasing a policy with long-term care benefits.
Depending on the policy options you select, insurance can help
you pay for the care you need, whether you’re living at home, in
an assisted living facility or in a nursing home. There are three
main types of insurance policies with long-term care benefits
you’ll want to consider:
• Traditional long-term care insurance: Typically provides
the most comprehensive coverage for the cost. Depending on
the policy, may cover home care, assisted living, adult daycare,
nursing home care, hospice care and Alzheimer’s facilities.
But annual premiums may increase, pre-existing conditions
may make obtaining coverage difficult, and unused benefits
can be lost.
• Hybrid life insurance with a long-term care benefits
rid
er: These are permanent life insurance policies with
optional LTC benefit riders that combine long-term care
benefits with a death benefit, so that any unused benefits are
paid out to beneficiaries as a death benefit. Benefits are usually
less generous than traditional long-term care insurance, but
underwriting requirements are oen more lenient.
• Permanent life insurance with a long-term care or
ch
ronic illness benefits rider: Typically provides access
up to a specified percentage of the policy’s death benefit to
pay for long-term care. Beneficiaries receive any remaining
unused death benefit.
Insurance policies with long-term care benefits
Traditional long-term care insurance*
Hybrid life insurance with a
long-term care benefits rider
Permanent life insurance with a long-term
care or chronic illness benefits rider
How it
works
• A policy dedicated to providing benefits if
you should need long-term care.
• Premiums are paid over time and are
based on the benefits you select when you
purchase the policy.
• Some policies may provide a return of
premium (up to the out-of-pocket premium
paid) upon surrender or death.
• Requires full underwriting.
• A life insurance policy that
provides long-term care benefits
if you need them.
• If you don’t, an income-tax-free
death benefit is paid to
your heirs.
• Initial long-term care benefits are
set when you purchase the policy
and are based on a multiple of the
death benefit.
• Premiums will not increase and
may be paid over time or all at
once in a single premium payment
at the beginning.
• A money-back guarantee may also
be available through a return-of-
premium rider.
• May be available with streamlined
underwriting.
• A life insurance policy that provides a death
benefit, but also has a rider which provides
access to the death benefit early if you need
it to cover long-term care and/or chronic
illness expenses.
• All life insurance riders offering these benefits
do so in accordance with IRC Section 101(g),
which typically allows the benefits to be
paid as a tax-free acceleration of the death
benefit.
4
Long-term care riders are also typically
intended to qualify as a qualified long-term care
insurance contract under IRC Section 7702B.
Chronic illness riders do not qualify as long-term
care insurance under IRC Section 7702B.
• Costs and benefits are based on how much life
insurance you purchase and a variety of premium
payment options are available.
• Unlike traditional long-term care insurance, this
type of policy has cash value.
• Requires full underwriting.
Why it
might
work for
you
A good choice if you think you’ll likely need
long-term care (based on your personal or
family health history).
A good choice if you want to
plan for long-term care in case you
need it, but also want the flexibility
to use the funds set aside for your
heirs if you don’t need long-term
care.
A good choice if your primary goal is to get life
insurance protection with a death benefit for
your heirs — and you’re concerned about paying
for long-term care benefits you may not use.
Things to
consider
Your annual premiums may increase and if
at any time you stop paying premiums, your
policy will be dropped and you will not get
your money back. You may forfeit your money
if you don’t use the benefits; however some
policies have flex credits and/or provisions
that may provide returns (up to the
out-of-pocket premium paid) upon death.
Since the initial long-term care
benefits are based on a multiple of
the death benefit, they may be less
than a traditional long-term care
insurance policy.
Since long-term care or chronic illness benefits
are limited to a percentage of the death benefit,
they may be less than a traditional long-term
care insurance policy. There is also no
money-back guarantee.
* Many insurance companies have exited the traditional long-term care insurance market over the last 5-10 years. As a result, there may be times when traditional long-term care
insurance is not available through Merrill. However, it does continue be available in the general market. The information above is intended to help you understand the key features of
this product.
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How much does long-term care insurance cost?
The cost of long-term care policies is predicated on your age,
your overall health and the extent of coverage you’re seeking.
There are several factors that will impact your decision as to
what type of policy is right for you and how much it will cost.
These include:
• Total coverage amount: The maximum total lifetime
benefit amount covered by the policy.
• Daily/monthly benefit: The maximum daily or monthly
amount your policy will provide towards the cost of
long-term care.
• Elimination period: The required waiting period before
benefits begin (e.g., 90 days).
• Inflation protection: A provision that helps your long-term
care benefit keep pace with the rising cost of care.
• Shared benefits: A rider that allows both members of a
couple to pool their long-term care benefits for use as needed.
Most policies also offer a 30-day “free look” period during
which you may cancel at any time and receive a complete
refund of your principal.
When should you buy long-term care insurance?
As is the case with life insurance policies, age is a significant
factor in determining the cost of a long-term care policy.
Typically, first-time buyers of long-term care policies are
individuals who are age 55 to 64 and able to qualify for good
health discounts.
Potential legacy and tax planning benefits
Not only can a long-term care policy help protect your assets
and enable you to leave a more meaningful legacy for your
heirs, but depending on your income and age, long-term care
premiums may qualify as medical expenses and be 100% tax-
deductible. In addition, long-term care insurance premiums may
be paid with funds from a Health Savings Account (HSA) that
you may have funded with pre-tax dollars. And any benefits
paid on your behalf for long-term care services are not taxable
as income.
When do most people apply for long-term
care insurance?
5
Under 55 31
%
Ages 55-64 50
%
Age 65+ 19
%
When do most applicants get rejected for
unacceptable health?
5
Ages 50-59 23.1
%
Ages 60-64 28.9
%
Ages 65-69 36.9
%
Ages 70-74 45.1
%
75 or older 19.8
%
Complete your entire financial strategy
You’ve worked hard over the years to build your wealth for a
more secure future. As you approach retirement, protecting
that wealth becomes even more important than building it.
A financial strategy that fails to address healthcare costs —
both those you expect and those that are less predictable such
as a need for long-term care — leaves you far more vulnerable
to depleting your savings and wiping out any potential to leave
a meaningful legacy.
Getting started
For more information about long-term care insurance and for help in reviewing the options available to fit your needs, please
talk to your Merrill advisor.
1
So
cial Security Administration. “Benefits Planner, Life Expectancy”, ssa.gov/planners/lifeexpectancy.html. Accessed July 21, 2023.
2
Administration for Community Living, U.S. Department of Health and Human Services, “How Much Care Will You Need?”
https://acl.gov/ltc/basic-needs/how-much-care-will-you-need. Accessed July 21, 2023.
3
Genworth Cost of Care Survey. https://www.genworth.com/aging-and-you/finances/cost-of-care.html. Accessed July 21, 2023.
4
Receipt of benefits under an accelerated death benefit rider may be taxable, especially if the insured does not have a prescribed plan of care. You should consult your personal tax
or legal advisors before applying for this type of benefit. It may also affect your eligibility for public assistance programs.
5
Claude Thau, Nicole Gaspar, and Chris Giese. “2023 Milliman Long Term Care Insurance Survey.” Broker World, July 1, 2023, https://brokerworldmag.com/2023-milliman-long-term-
care-insurance-survey/. Accessed July 21, 2023.
This material should be regarded as educational information on healthcare costs and is not intended to provide specific healthcare advice. If you have questions regarding your
particular situation, please contact your healthcare, legal or tax advisor. Merrill, Bank of America, and any of its affiliates do not monitor or maintain the information available on the
external web sites mentioned nor represent or guarantee that such web sites are accurate or complete, and they should not be relied upon as such.
Long-term care insurance coverage contains benefits, exclusions, limitations, eligibility requirements and specific terms and conditions under which the insurance coverage may
be continued in force or discontinued. Not all insurance policies and types of coverage may be available in your state. Life insurance policies contain fees and expenses, including
cost of insurance, administrative fees, premium loads, surrender charges and other charges or fees that will impact policy values. Life insurance death benefit proceeds are
generally excludable from the beneficiary’s gross income for income tax purposes. There are a few exceptions, such as when a life insurance policy has been transferred for
valuable consideration.
All guarantees and benefits of the insurance policy are backed by the claims-paying ability of the issuing insurance company. They are not backed by Merrill or its affiliates, nor does
Merrill or its affiliates make any representations or guarantees regarding the claims-paying ability of the issuing insurance company.
This communication was prepared to support the promotion and marketing of insurance and/or annuity products. The issuing insurance company, MLLA, MLPF&S and their representatives
do not provide tax, accounting or legal advice to clients. Clients should consult their own independent advisors as to any tax, accounting or legal statements made herein.
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