The Importance of Planning for the Cost of Long-Term Care

According to the 2024 illumifin Cost of Care Study¹, more than 12 million Americans pay for long-term care services, which can include home-based care, assisted living or nursing homes. These expenses can be quite high and are unlikely to go away once they begin. More importantly, Medicare and other types of health insurance typically do not cover non-medical long-term care.

A recent survey from Northwestern Mutual shows that planning for long-term care is often overlooked: 61 percent of Americans think they'll need such care, but only 44 percent have actually planned for it.

“Long-term care is a common financial blind spot—something that individuals and families think they can deal with in the moment if it happens,” said Kamilah Williams-Kemp, Chief Product Officer at Northwestern Mutual. “The more people understand what’s involved with long-term care, the more prepared they can be should the need arise.”

Here’s what you need to know about this crucial part of retirement planning.

What is long-term care?

Long-term care is a category of services designed to help people meet their chronic health and personal care needs over an extended period of time. People typically need long-term care when they are unable to perform activities of daily living on their own. The need for long-term care can sometimes follow an unplanned health setback, such as a heart attack or stroke. But the need typically develops gradually such as arthritis that worsens from mild to severe or cognitive impairments, like dementia, that lead to memory or reasoning loss. These conditions can affect one's ability to independently and safely perform daily tasks we often take for granted, like showering and dressing.

Long-term care includes some services that are provided to someone who has a chronic condition that is progressive in nature, gets worse as time goes on, and generally has no cure. It’s important to note, however, that long-term care typically does not include medical care or treatment of the underlying illness or injury. Here are some key points to keep in mind:

• Most long-term care events are driven by chronic impairments, such as hypertension, arthritis, diabetes or emphysema.
• Chronic impairments can be physical or cognitive.
• Clarifying these nuances can help reduce the common confusion surrounding this topic.

Unfortunately, the costs for these services are often significant—and once required, an often ongoing expense.

How much does long-term care cost?

According to the 2024 illumifin Cost of Care Study¹, the cost of long-term care can vary widely depending on the type of care needed and where it is provided. Here are the national averages for different types of long-term care:

Home-based professional care

This option involves hiring medical or other professionals to provide necessary assistance within the home. In-home care can be provided by licensed home health care agencies, home care agencies or independent providers.

Home care agencies offer non-skilled care, while home health care agencies provide both skilled and non-skilled care. Most long-term care at home involves personal care assistance from a home health aide. However, skilled care tasks, such as wound care and home infusion therapy, may require a nurse.

Costs for these services can vary based on the qualifications and skill level of your provider. Hiring a home health aide can cost around $33 per hour, whereas a licensed practical nurse could cost $141 per visit.

Adult day care centers

Adult day care centers provide daytime care at community centers for adults needing assistance or supervision. They provide an alternative or supplement to home care. Services include personal care, medication management, and social activities like discussion groups, arts, crafts, games and music.

A medical adult day care center averages $121 per day (or $31,460 per year) and a socially based day care setting costs around $114 per day (or $29,640 per year).

Assisted living facilities

Assisted living facilities offer housing, personalized care and health services for those needing help with daily activities but not the intensive care of a nursing home. They provide services like laundry, meal preparation, socialization, transportation, personal care and medication assistance; many also offer specialized memory care.

These facilities also have common social spaces for residents to enjoy. Depending on the size of the apartment, assisted living costs average $5,463 monthly ($65,558 annually) for a one-bedroom apartment.

Nursing homes

Nursing homes provide 24-hour room and board, general nursing care and personal assistance for those unable to manage daily activities such as bathing, dressing or using the bathroom. They also cater to individuals needing supervision due to cognitive impairments. Nursing homes are preferred when care needs exceed those manageable at home or in an assisted living facility.

The national average for a private room is $347 per day, which costs about $126,655 per year. A semi-private room is slightly less expensive at $308 per day and $112,420 annually.

Cost of long-term care calculator

How much long-term care might cost you will vary based not only on what type of care you want or need, but also where in the country you receive it. Use this long-term care calculator to get a sense of what long-term care may cost you in your area and how it may change over time.

Covering the cost of long-term care

Given the significant costs associated with long-term care, it’s important to plan ahead for how you may cover this expense should you ever be in a situation where you need it. Addressing long-term care needs is a crucial part of your family’s financial plan, offering the confidence and resources to support your wishes and benefit both you and your loved ones.

Fortunately, there are several options for funding long-term care expenses if and when the need arises.

• Personal assets, such as savings or liquid investments, can be a way to self-fund these kinds of expenses. If you plan to self-fund, consult an advisor to identify resources and stress-test your plan's ability to manage expenses, including potential tax consequences, which you should discuss with your tax advisor.
• Personal income sources including pensions, Social Security and income from stocks may help with regular, ongoing expenses like long-term care costs. You should determine how much of these resources are already allocated to current expenses, identify any lifestyle changes needed to redirect funds for care and decide which resources will be used first.
• Long-term care insurance is specifically designed to help cover potential long-term care expenses. This solution is the most cost-effective to help protect against a long-term care event. It's ideal for clients seeking long-term care protection who are comfortable not receiving a benefit despite premiums paid in the event they never have a long-term care need.
• An accelerated death benefit rider available on a whole life insurance policy could be another cost-effective solution to add flexibility to cover long-term care needs when purchasing life insurance. These riders allow you to accelerate a portion of the death benefit to cover qualifying long-term care expense, which proportionately reduces your policy’s accumulated value. The remaining death benefit goes to the beneficiary. It's ideal for younger clients who want to start addressing long-term care needs early. Should they want more long-term care coverage in the future, they can purchase more down the road.
• Hybrid life and long-term care insurance offers the benefits of both whole life insurance and long-term care coverage. It’s popular among those who want greater long-term care coverage, a death benefit if care isn't needed, and guaranteed premiums on a limited pay period. With this option, qualified long-term care expenses are initially reimbursed by accelerating the policy’s death benefit. Once the death benefit is used, you can access additional funds if you continue to be eligible to receive benefits. If you end up not needing any long-term care services, the death benefit value will remain intact, just like a traditional life insurance policy. It's also a permanent product, so it grows cash value.

Any of these options²—or a combination of them—can put you in a position to help cover the range of long-term care costs you may need in the future. Planning ahead and having a strategy for how to cover these potential expenses will put you in the best position to financially prepare for long-term care needs. Since family members usually manage care, sharing a plan with your care preferences can make difficult situations more manageable and guide loved ones when decisions are needed.

“Long-term care events happen frequently, and if people plan proactively, they will have more good options for care to choose from,” Williams-Kemp said. “This is where a trusted financial advisor is absolutely critical, helping assess each person’s unique financial situation and creating a customized plan to help them navigate these complex decisions.”

If you need help developing a plan that fits your financial situation, consider working with your Northwestern Mutual financial advisor to make sure you’re covered.

¹ 2024 illumifin Cost of Care Study. Published March 2024 by illumifin Corporation.

² All payments made under insurance policies discussed above are subject to that specific policy’s conditions and terms. Be sure to read your policy closely.