The long-term care insurance market is arguably the most dysfunctional in the entire industry.
LTC insurance premiums are unaffordable for many average-income Americans, carriers have abandoned the market en masse, and benefits have been pared to the bone.
The end result of all of this is that, according to LIMRA, fewer than 5% of Americans over the age of 50 are now estimated to have LTC insurance.
About 70% of Americans will require long-term senior care later in life.
Many will need to cash in large portions of equity from their houses, significantly reducing the amount they can pass onto their family, while others less fortunate will be required to rely on patchy Medicaid coverage.
However, there are signs that the LTC insurance market is starting to solve some of its problems through innovation, which could particularly be to the benefit of people in their 30s, 40s and 50s who are entering the opportune age to take out coverage.
So, how can financial advisors and planners best guide their clients through the most appropriate options here?
Awareness and Education
First, it's important to understand where the average American is when it comes to expectations of future care costs.
When asked in a recent survey to estimate how much assisted living costs are, the median answer was $25,000 per year.
Considering that average care costs in the state of California (which isn't even in the top five most expensive states) is $63,927 per year, most Americans are significantly underestimating the costs they'll face later in life.
The average end-of-life stay in an assisted living facility is around 22 months, which at the above annual cost can be afforded by many using either home equity, retirement income or other assets and savings.
However, those who develop Alzheimer's will likely require specialist memory care, which is more expensive than assisted living. Typical stays there can range from two to eight years.
Considering that 1 in 9 people ages 65 and over has Alzheimer's, many seniors face spending down all of their home equity and other assets to cover a prolonged period of specialist memory care.
There is a safety net of sorts, once seniors and their families find themselves in such a position.
But again, Americans are largely misinformed about this.
In the above survey, 51% of respondents incorrectly believed that Medicare would cover the cost of assistance with daily living.
While Medicaid provides some coverage for assisted living costs in most states, it's often difficult to find a facility that will accept Medicaid.
The Assisted Living Industry Perspective
As someone who helps families in their search for assisted living accommodation, I know firsthand the impact having or not having LTC insurance can have.
Speaking from experience, around 10% of the seniors I work with have an LTC insurance policy.
For these fortunate few, they get to choose a facility based on quality, amenities and location, as their LTC insurance policy will often cover all of the fee, or at the very least, a significant portion of this.
However, for the vast majority who don't have this coverage, their monthly retirement income will not cover assisted living fees.
They're therefore faced with having to make up the shortfall, usually by drawing down savings or cashing in home equity.
