A few years back, Betty was crossing the street in a crosswalk when a car flew around the corner, hitting her, tossing her several feet. She was hospitalized with several broken bones and had to have multiple surgeries, which included the placement of several pins and plates. After the acute hospital care, she was sent to a skilled nursing facility to recover. After 10 days of recovery, Medicare stopped paying for her care. They told her that since she couldn't have rehabilitative care until her body healed and she couldn't bear her own weight (she was bedridden), she no longer qualified for Medicare to pay for her care. They were going to send her home – alone. Betty was single and had no family to help her. She had no choice but to spend down her few assets, go onto Medicaid, and be placed where they had an opening. She ended up in a group home for people with Alzheimer's for 6 months - maddening for someone with all their mental faculties.
Creating Your Long-Term Care Plan
How can you keep this from happening to you? The answer is simple – work with your advisor to create a plan for Long-Term Care.
The first option is to purchase a traditional monthly pay long-term care (LTC) policy which will create a pool of money paid out daily or monthly until the pool is exhausted. In most cases, if you never need care, the money is gone – kept by the insurance company. These policies can come with a hefty price tag at older ages, and you must medically qualify, which depending on preexisting conditions, may not be possible.
The second option is to use your own funds by investing a lump sum of money or investing an annual sum into a life/long-term care hybrid policy. The money funds a life insurance plan with a LTC benefit. When you need LTC, the plan pays a monthly benefit for as long as you need it – an infinite pool of money for your care. If you never need it, your beneficiary gets the money as a life insurance death benefit. How does that work with your dollars? Let's take a look – at a couple of case studies.
Case #1 Mike is 65, a non-smoker, relatively healthy, and has $125K of non-qualified funds to invest. That $125k investment would generate a death benefit of $172,000 or an unlimited LTC benefit of $6,875 per month (facility or home care). Mike ends up with Alzheimer's and receives care for 6 years. For his $125k investment, the plan will pay out $495,000 over those 6 years. Since the plan paid out more than he put in, there is no death benefit.
Case #2 Larry invested $125K but passed away from a massive heart attack – his family received $172,000 (> $125k he would have left them).
Case #3 Tom doesn't have $125k to invest. Tom can pay until age 95 on a policy with the same benefits discussed above by paying an annual premium of $9,340. Let's say Tom starts drawing the benefits at age 74, draws for 6 years, and then passes away; he would have paid $84,060 in premiums. Because he is receiving care, the waiver of the premium provision kicks in -- meaning his premium payments stop. The plan will have paid out $495,000 for his $84,060 investment – thereby multiplying his dollars.
These can be joint or individual policies; done with qualified (IRA, 401k) or non-qualified money, and benefits are received tax-free. There are some medical questions, but these are easier to qualify for than a traditional LTC policy.
Lastly, suppose you have significant medical conditions that would keep you from getting approved for these plans, but you have a large permanent life insurance policy (not term). You may be able to make a life or viatical settlement and receive a lump sum of money in exchange for transferring ownership of the policy to another individual or entity. You would receive a payment that is less than the death benefit to fund long-term care. When you pass, the death benefit goes to the purchaser of your policy.
The last resort should be spending down your assets and having Medicaid pay for your LTC needs. If you are single and don't care about leaving anything to your family and don't care where you are placed when the time comes, this might be a viable option.
If you are married, this could be devastating for your spouse. Not only do they make you spend down a large portion of your assets before they pay for care, but they will also take a large portion of your income each month. Your spouse may be unable to afford to continue their current lifestyle and end up impoverished.
LTC expenses are the #1 cause of bankruptcy in the United States. People say – "that will never happen to me," but statistically speaking, 3 out of 4 people will need some form of LTC in their lifetime.
The question is, are you and your family willing to take the risk that you could be one of the 3 out of 4?
Schedule your no-cost long-term care planning session today. We are here to make retirement 123 Easy!
By American Retirement Advisors
American Retirement Advisors helps retirees and pre-retirees navigate Medicare, estate planning, and retirement income — so you can enjoy the retirement you've earned.
You Might Also Like
- Medicare Supplemental Insurance: Finding Affordable Coverage
Medicare & Healthcare · Tammy Semler - Understanding Medicare Rate Increases: What's Behind Rising Premiums
Medicare & Healthcare · Tammy Semler - Medicare Moment: Cataract Surgery Coverage - What You Need to Know
Medicare & Healthcare · Tammy Semler
Easy Eddie's Take
This story about Betty really shows how Medicare's skilled nursing benefit works in 2026. Most people are surprised when they learn that Medicare Part A only covers skilled nursing facility care when you're actively getting better through physical therapy or occupational therapy. Once your doctor says you need custodial care (help with daily activities like bathing, dressing, or eating), Medicare stops paying – even if you're still recovering from surgery.
Here's what a lot of folks don't realize: the Centers for Medicare & Medicaid Services requires what's called "skilled care" for coverage to continue. That means you need skilled nursing services or rehabilitation therapy that shows measurable improvement. If you plateau or just need help with basic daily activities, you're looking at private pay rates that can run $8,000 to $15,000 per month in Arizona nursing facilities.
The hybrid life insurance policies mentioned in the article are becoming more popular because they solve the "use it or lose it" problem with traditional long-term care insurance. Think of it this way: you're putting money into a policy that either pays for your care or leaves a death benefit to your family. A little preparation today can make a big difference tomorrow.