When you think of long-term care, what’s the first thing that comes to mind? For many, they may be nursing homes or something associated with aging and increased medical needs. In a broad sense this is appropriate, but a lot has changed in the last decade or two regarding options and how to finance them.

Boomers (and the next generation of retirees) must plan for elder care differently than their parents, as they face the uncertain future of entitlement benefits and rapidly rising medical costs. And they are living longer. When it comes to planning, many people have the “it won’t happen to me” attitude, yet approximately 70 percent of people over the age of 65 will need some form of long-term care assistance in retirement.

Evolving Options

The tough question that weighs on many people is how do you plan for these unforeseen expenses so they don’t derail retirement? When planning for care costs, you have options like setting aside savings for medical expenses or relying on entitlement or family benefits.

Long-term care insurance is another option that people should consider. In recent years, insurance products have evolved with care options and trends. Today, almost half of the benefits paid by private insurers are for home care or assisted living care. Whereas before, this insurance was used primarily to pay for skilled nursing care. Many current policies also pay the benefit to the insured, unlike many policies in the past that paid directly to a nursing facility. To understand more about the evolution of long-term care, here’s a deeper look at the past and present of long-term care planning:

Government Programs: The silent generation (those born during the great depression and World War II) were among the first to experience longer lives and the first to have access to official nursing care facilities. However, the question of whether or not there would be rights was not a topic of conversation for this generation. As more boomers reach retirement age, the possibility of putting pressure on government entitlement programs has become a growing concern, as current benefits may not cover most medical services at which a person will face.

Long-term care insurance: Since long-term care insurance is a relatively new idea, many parents of baby boomers probably didn’t consider the potential needs (and associated realistic costs) of formal long-term care. Since then, insurers have developed a number of options to meet the needs of boomers, and over time, insurance features have evolved. Some of them include:

  • Direct long-term care insurance policies: They are policies that pay a benefit up to the daily or monthly maximum. The amount can be paid to the insured person, who can then pay the care provider. The insured person may also choose to pay to have the care provider bill the insurance company directly.
  • Life insurance policies with a single rider: Advanced benefit riders can be somewhat inexpensive additions to a life insurance policy and allow the death benefit (often up to 90%) to be paid prior to death if the funds are needed for long-term care. Any amount provided to the insured is simply deducted from the death benefit when that person dies.

  • Policies that combine life insurance and long-term care insurance in a single policy: Some insurance plan options may allow a lump-sum premium to be paid for insurance that provides a combination of benefits, such as a death benefit and the ability to advance most of that benefit for long-term care needs. These policies may even include a “right to rescind” contract where the policyholder can change their mind after a period of time and the full premium is refunded (if no benefits have been paid).

Family: Trusting family may seem like the easiest option, and it is the one many people choose, sometimes out of necessity. However, the emotional, physical, and financial stress on family members caring for a dependent relative can be a daunting task. If you plan to rely on family members to support your long-term care needs, be sure to let them know well in advance so they can create a plan to address your needs and wants.

An older person in need of care can choose from many options to help provide or finance professional care, including family, government resources, self-insurance (if there are sufficient assets), or private insurance. Each of these options has some merit, but in most cases, no single option will cover everything. It’s hard to predict what kind of long-term care needs she may have, so you may want to talk to a professional who can discuss options for her particular situation.

*There can be many variations in insurance policies, so customers should carefully consider each policy with respect to their own current and potential needs.