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Long-term care is one of the most significant, and most overlooked, costs in retirement. Understanding your options can make a meaningful difference in how prepared you are. Long-term care (LTC) insurance is one of the key tools available.
According to a 2022 research brief for the HHS Assistant Secretary for Planning and Evaluation (ASPE), an estimated 56% of people turning 65 between 2021 and 2025 will need long-term services and supports at some point in their lifetime. The cost of that care can be substantial: the 2025 CareScout (formerly Genworth) Cost of Care Survey found the national median annual cost of a private nursing home room is $129,575, assisted living is $74,400, and a home health aide (44 hours per week) costs about $80,080.
As you prepare for the future, understanding the importance of long-term care insurance and its benefits can help you make informed decisions about what is right for your situation.
Originally published: May 31, 2024
Long-term care costs have been steadily increasing, making it essential to plan in advance. Whether it's in-home care, assisted living facilities, or nursing homes, the expenses associated with long-term care services, often well over $74,000 a year, can quickly deplete retirement savings. Long-term care insurance helps mitigate the financial burden by providing coverage for these services, allowing you to preserve your assets and reduce the burden on your loved ones.
Your retirement savings are meant for your financial security during your golden years. However, a significant portion of those savings can be at risk if down the line you have long-term care needs. By investing in long-term care insurance, you can create a protective layer for your retirement savings. The insurance policy will cover a portion of the expenses, ensuring that your hard-earned savings remain intact for other important needs such as leaving a financial legacy for your heirs.
With long-term care insurance you have the freedom to choose the type of care you desire. It provides the flexibility to receive care in various settings, including your own home, an assisted living facility, or a nursing home. This flexibility is important to many families, as it provides them options as retirees age. With this coverage in place, you have the independence to make decisions about your care without being limited by financial constraints or family situation.
Long-term care needs can place a significant burden on your loved ones, both emotionally and financially. By having long-term care insurance, you alleviate some of this burden. The policy provides the financial means to secure professional care, easing the responsibility on your family members. It allows them to focus on providing emotional support rather than shouldering the entire financial obligation of your care.
Long-term care insurance often provides access to a network of pre-screened and approved care providers. This ensures that you have access to quality care services and professionals who meet specific standards. Having this network of trusted providers simplifies the process of finding suitable care and ensures that you receive the necessary support when the need arises.
The peace of mind long-term care offers sets it apart from many other products. By having this coverage, you can approach your retirement years with confidence, knowing that you have taken steps to protect the financial well-being of you and your family.
One of the most significant drawbacks of long-term care insurance is the high premium costs. Premiums can be expensive, especially if you purchase a policy later in life. Additionally, premiums are not guaranteed to remain the same, they can increase over time, sometimes significantly, putting a strain on your finances.
Long-term care insurance policies often come with restrictions and limitations on what they cover. Certain types of care or specific medical conditions may not be included, leading to potential gaps in coverage. It's essential to thoroughly understand what your policy includes and excludes to avoid unexpected out-of-pocket expenses.
Unlike other types of insurance, long-term care insurance operates on a use-it-or-lose-it basis. If you never need long-term care, the money you paid in premiums is not returned to you or your heirs. Some newer policies offer partial refunds or benefits, but these options can typically come at a higher cost.
The details and fine print of long-term care insurance policies can be complex and confusing. Understanding the terms, conditions, and various options requires careful reading and possibly professional advice. Misunderstanding the policy details can lead to unexpected issues when it comes time to use the benefits.
Obtaining long-term care insurance can be challenging if you have pre-existing health conditions. Many insurers require health screenings and may deny coverage based on your medical history or your age. This makes it important to consider purchasing a policy while you are still relatively young and healthy.
Many insurers have stopped selling new standalone long-term care policies in recent years, citing the same premium and underwriting challenges described above. Instead, the market has shifted toward hybrid life insurance or annuity policies that include a long-term care rider, combining a death benefit or cash value with the option to draw funds for care if needed. These hybrid products can offer more predictable costs than standalone LTC policies, though they typically require a larger upfront premium and come with their own tradeoffs worth discussing with a financial professional.
The Savvly Longevity BenefThe Savvly Longevity Benefit is designed to deliver scheduled income at later-life milestones for investors who reach them, precisely when long-term care needs are most likely to arise. It adds a longevity-based reallocation layer to market-linked performance, adding scheduled payouts at ages 80, 85, 90, and 95 for investors who reach those milestones. Savvly is not insurance and not FDIC insured; payout amounts are not guaranteed, and it does not replace long-term care coverage. Learn more at savvly.com/disclosures.
How likely is someone to need long-term care?
A 2022 ASPE research brief estimated that 56% of people turning 65 between 2021 and 2025 will need long-term services and supports at some point in their lifetime.
How much does long-term care cost?
The 2025 CareScout Cost of Care Survey found the national median annual cost of a private nursing home room is $129,575, assisted living is $74,400, and a home health aide is about $80,080.
What is a hybrid long-term care policy?
A hybrid policy combines life insurance or an annuity with a long-term care rider, allowing funds to be used for care if needed or passed on as a death benefit if not. Many insurers have shifted toward these products as standalone LTC policies have become less common.
Long-term care insurance can be an important part of a comprehensive retirement plan, helping protect savings and provide flexibility if care needs arise. It also comes with real costs and tradeoffs, from premiums to coverage limits, that are worth weighing carefully. Take the time to assess your needs, consider the available options, including hybrid policies, and consult with a financial or insurance professional to determine the best approach for your circumstances.
Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of insurance. Be sure to first consult with a qualified insurance agent, financial adviser, or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
This article is for informational purposes only and does not constitute financial, tax, or investment advice. Consult a qualified financial professional before making retirement planning decisions.
Disclosures
The information on this page is provided for educational purposes only and is not intended as investment, legal, or tax advice. It is designed solely to illustrate how longevity-linked investment benefits may work under certain assumptions. Actual results will vary. All illustrations, examples, and case studies are hypothetical and are intended to demonstrate potential scenarios — not to predict or guarantee actual outcomes. They do not represent the performance of any individual investor, portfolio, or account.
Key Assumptions Used in the Illustrations
Life expectancy and mortality projections are based on the most recent Social Security Administration (SSA) tables available at the time of simulation.
In the event of death or early withdrawal, hypothetical scenarios assume that investors who exit early, or their estate in the event of death, may receive 75% of the lesser of the initial investment or current market value, plus 1% for each full year the account was active. Case studies assume standardized market growth of 8% annually and do not incorporate unexpected market volatility, inflation, changes in interest rates, or changes in an investor's personal circumstances.
Simulations may assume a 3% annual early withdrawal rate prior to payout or death. All figures shown are net of fees. No forecast, projection, or hypothetical return should be relied upon as a promise or representation of future performance.
Past performance is not indicative of future results. The 8% annual market growth rate used in illustrations is a standardized assumption for modeling purposes only and does not represent the historical or expected performance of any specific investment. Note that early or voluntary withdrawals by other participants can affect fund performance and the size of distributions, and that a higher-than-expected number of participants reaching payout milestones may reduce the per-participant benefit received.
Savvly's Longevity Benefit is not a bank product, not FDIC insured, not insured by any federal government agency, and not insurance; payout amounts are not guaranteed. Investment values may decline..
Savvly's Longevity Benefit may not be suitable for all investors. Eligibility to invest is subject to qualification requirements and not all investors will be eligible. Investors should carefully consider their investment objectives, risk tolerance, time horizon, and financial situation before investing. See savvly.com/disclosures for current eligibility criteria, fees, risks, withdrawal terms, and fund assumptions.
This content is published by Savvly, Inc. Savvly has a financial interest in the products described and this content should not be interpreted as independent financial research or analysis. Investors should carefully evaluate their own circumstances and consult a qualified financial professional before making any investment decision.
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