How Savvly and Long-term Care Insurance Differ

November 16, 2022

People often worry about how they'll manage if they are sick and need help, say after they are 75 or 80. But what if they're 75 or 80 and healthy? Whether or not they need in-home assistance or long-term care, will they have enough money to cover their current lifestyle?

Why the heightened concern now? Because inflation has broken far above the 2-percent annual target, and markets are whipping up and down. More importantly, Americans live much longer than before, adding "longevity risk" to their concerns. 

So how confident can you be that what you have set aside will be enough if you invest in traditional instruments?

Long-term care is a retirement tool used to cover costs in later years if you are debilitated enough to trigger its use. And if you buy one of its hybrid forms that add a life-insurance component, it may leave something for your heirs. But what if you stay healthy?

Savvly may offer the solution.

If you consider Savvly as one of the pieces of your retirement plan, you might wonder how it compares with long-term care insurance.

What is long-term care insurance?

Long-term care insurance is private insurance that pays for the assistance needed due to a chronic illness or weakness: it covers custodial care. To activate your policy, you typically must be unable to perform two or three of a list of six "activities of daily living" or ADLs, such as bathing, dressing, toileting or feeding yourself.

Many assume that Medicare will cover such needs, but it doesn't. It only covers acute care or surgery ("skilled nursing care"), limited to full coverage for 20 days, then partial until day 100. 

Nursing facilities can charge $108,405 or more annually, and families can spend about $62,000 a year for 44 hours per week of in-home care. [Source: ]

The price of a long-term care policy will depend on how long you must wait for benefits to kick in after you need them (the elimination period), policy limitations, age, and underlying health at the time of purchase.

What is Savvly?

Both long-term care insurance and Savvly are designed to help with the later stages of life. But they are aimed at two very different lifestyles during that window. Long-term care insurance covers you when you cannot function independently, regardless of age. Savvly pays you regardless of health once you live to a certain age.

With Savvly, you own shares in a limited partnership with a specific percentage of underlying assets such as S&P 500 ETFs. As a Savvly investor, you can purchase shares in its risk-pooled retirement plan, typically allocating about 5-10% of the assets you have set aside for retirement. You will receive your share of the pooled fund's value at a specific payout date – sometime after your mid-70s – to replenish your retirement resources for your later years.

How do long-term care insurance and Savvly differ?

Following are several ways long-term care insurance policies can differ from Savvly:

  1. Long-term care insurance only covers a specific set of services, and you only qualify if you meet specific criteria for debilitation. Savvly allows you to spend your money on whatever you wish, even if you're healthy and thriving.

  2. Long-term care insurance has maximum policy limits on how much one can spend per day on long-term care. With Savvly, one can spend as much or as little as one chooses and is prudent with one's financial plan.
  1. The eventual effect of long-term care insurance is to start paying an ongoing stream of premiums. With Savvly, the immediate effect after investment is the ability to spend more freely because you know that you have a replenishing cash infusion at the plan's payout age.
  1. Long-term care insurance increases in cost as you get older, possibly becoming unaffordable depending on your age and underlying health conditions. Some people with pre-existing conditions will not be allowed to buy it. When you join a Savvly risk-pooled plan, starting older only affects the length of time your plan has as it grows your payout. Savvly has no underwriting requirements and is available to everyone.
  1. Long-term care insurance may require a costly rider to be protected from inflation. In contrast, Savvly grows with major market indices, which are likely to mirror the inflation experienced in an economy.
  1. With long-term care insurance, any forfeitures for expired or lapsed contracts revert to the underwriting company. But Savvly's structure is based on pooling, so any forfeitures result in higher returns for fund participants, as forfeitures go to the rest of the pool.
  1. Traditional insurance products typically have considerable administrative costs rolled into the premiums instead of specific fees. Savvly's fees are low, in the 35-50 bps range. 
  1. Because the long-term insurance industry is deeply troubled (sales of traditional policies have declined 90% over ten years and less than 12 carriers still sell them), ) you may face direct counterparty risk should insolvency occur. But Savvly adds no credit risk, as it functions simply as a manager. As a client, you own shares in a limited partnership with a specific percentage of underlying assets such as S&P 500 ETFs.

How do long-term care insurance and Savvly perform?

Traditional (non-hybrid) long-term care insurance offers no particular "performance" as it has no accumulation mechanism. Savvly's performance comes from two sources. First, the returns of its pool match the market minus fees. And for the individual, the performance also benefits from the effects of the "longevity credit mechanism."

Longevity credits allow a pool of contributions to provide greater returns to those who reach the distribution date. Those who withdraw for whatever reason (by choice or through death) receive only a partial return of their contributions, thus enhancing the balance remaining for the others to share. The mathematical effect is to drastically increase returns at older payout ages, almost precisely offsetting the risk of increased long-term care costs should those arise.

And if they don't, then an investor can enjoy their Savvly payout while living the lifestyle they planned for!