7 Questions To Ask Before Buying Long-Term Care Insurance

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7 Questions To Ask Before Buying Long-Term Care Insurance

If you’re relatively healthy and independent, it’s unpleasant to contemplate a future that includes living in a nursing home or needing help just to bathe or get dressed. The thought of paying for such services over an extended period is only slightly less daunting.


Long-term care describes the assistance you’ll need—beyond medical help—if you are unable to provide for your own needs and end up in a nursing home or an assisted-living facility or must have help in your own home. It isn’t cheap.


In 2008, the average daily cost of a semiprivate room in a U.S. nursing home was $191, according to the MetLife Mature Market Institute. That’s just shy of $70,000 a year. The average expense of a year’s stay in an assisted-living facility was $36,372. Paying for a home-health aide who visits three times a week ran about $18,000 per annum.


An extended period of care could burn through savings pretty quickly. To protect their assets, an increasing number of people are buying long-term care (LTC) insurance. A relatively new product, LTC insurance exists to minimize the financial impact of a lengthy period of care. But policies are complicated, with a lot of fine print to navigate.


Is LTC insurance right for you?  This report will help you decide whether and when to buy—and how to avoid common pitfalls.



1. Will I Need Long-Term Care?


There’s no certain answer. Consider these facts:


  • Among Americans age 65 and over, about 19 percent have some sort of chronic physical impairment, according to America’s Health Insurance Plans. More than half of those age 85 and older have an impairment that requires long-term care. Approximately 22 percent of people in that age group are living in a nursing home at any given point.
  • The U.S. Department of Health and Human Services estimates that 65-year-olds have a 40 percent lifetime chance of going into a nursing home. Approximately one in 10 remain in such a facility for five years or more.
  • More than one-third of those who enter a nursing home stay there for one year or more. About 45 percent remain for three months or less.

 The need for LTC is determined by a person’s inability to perform at least two activities of daily living:

  • Bathing
  • Eating
  • Toileting
  • Dressing
  • Continence
  • Transferring (getting in and out of a chair or bed)

People who have Alzheimer’s disease, senile dementia or other cognitive impairments require LTC without having to meet the above requirement.



2. What Does LTC Insurance Cover?


Most of today’s policies cover nursing home care, assisted-living facilities, home care and adult day care. The latter two may make it possible for people to stay in their home if they choose.


Once it’s determined a person needs long-term care, a waiting, or elimination, period begins. When that time has passed, the policy begins to pay a daily benefit. The insured is responsible for making up any difference between the daily benefit and the cost of care.


Most policies exclude care for pre-existing conditions for a specific length of time, not longer than six months. During that period you’d have to pay out of pocket.


Finally, don’t assume government programs such as Medicare and Medicaid will cover long-term care. Unless you are poor or have depleted most of your assets, they won’t.


Medicare does not pay for ongoing assistance. Medicaid pays nursing home costs only for those who meet federal poverty guidelines.



3. Who Should Buy LTC Insurance?


It depends how much money you have set aside.  If you have less than $200,000 in savings and require LTC, you will probably qualify for Medicaid relatively quickly. If you have $1.5 million or more socked away, you can afford to pay for long-term care, advises Consumer Reports magazine. Those in the middle are most likely to benefit from the protection of LTC insurance.


To save on premiums, consider a longer elimination period, a smaller daily benefit or a shorter benefit period.


For example, you can buy lifetime coverage or you can purchase as little as two years’ of long-term care coverage. For those who enter a nursing home, the average stay is 2.7 years for men and 3.7 years for women, according to Fidelity Investments Life Insurance Co.


If you have moderate resources but aren’t sure about buying insurance, consider how long-lived your family members tend to be and whether debilitating diseases run in your family. The longer you expect to live and the more prone you are to chronic disease, the more likely you are to need LTC.


Smartmoney.com offers two calculators to help you decide whether to buy and how to evaluate a specific policy you’re looking at. See the section For More Information at the end of this report for the Web site address.



4. Am I Too Young (Or Old) To Buy LTC Insurance?


Premiums are significantly lower for people in their 40s and rise steadily with age. But buying LTC insurance in your late 50s to early 60s is still considered relatively young.


The benefit of buying sooner is paying a lower annual premium for the rest of your life. The downside is possibly paying premiums for 30 to 40 years before you need care—if you ever do.


Consider how much money you have saved for retirement and how much more you expect to save by the time you quit working.


If you have a fair amount of money set aside and expect to have $2 million or more by retirement age, you may not need to buy insurance. If you expect to have a more modest nest egg and have reason to think you may need LTC, consider buying sooner.


Another reason to buy when you’re younger: You’re more likely to pass the physical. About one-quarter of 65-year-olds fail the physical and are unable to qualify; by age 75, approximately one-third can’t pass, says Consumer Reports.


An additional disadvantage of waiting is that insurers introduce new LTC products every several years. New policies typically have slightly higher premiums than the versions they replace.



5. How Much LTC Insurance Cost?


It’s difficult to generalize about cost because premiums depend on so many factors, such as:

  • Your age
  • What level of benefits you want
  • The amount of time before payments kick in
  • Whether you want coverage for a specific period of time versus lifetime coverage
  • Whether your policy includes inflation protection
  • And so on

A lower daily benefit, a longer elimination period, and a shorter period of coverage, for example, could mean spending more of your own money in exchange for lower premiums.


According to the American Association for Long-Term Care Insurance, a typical 55-year-old who wanted $100-a-day coverage for three years would pay about $709 in premiums each year. A 65-year-old choosing the same level of benefits would shell out $1,342 annually.


Premiums stay the same each year—although the insurer can increase rates for a whole class of customers. Before you choose an insurance company, find out its history of rate increases.



6. What Features Should I Look For?

Policy language can be quite confusing. When you’re shopping, consider hiring a fee-only financial planner who can help you determine which policy is best. He or she is paid by the hour and doesn’t receive a commission for selling you products.



As you compare policies, check for the following elements:


  • Inflation protection, which means benefit amounts increase each year at a specific rate to cover the rising cost of nursing care. Options include, for example, a 5 percent simple or a 5 percent compound adjustment. Compound protection is superior but costs more.  
  • A guarantee that as long as you pay the premiums, your policy cannot be cancelled because of age or poor health.  
  • Coverage for cognitive impairments such as Alzheimer’s or senile dementia. 
  • A wide range of covered services, including care in a nursing home or assisted-living facility, home-health care and adult day care.  
  • Coverage for homemaker services such as cooking and cleaning.
  • Waiver of premiums during periods of home care or care in a nursing home or assisted-living facility (once the elimination period has been met).  
  • Coverage for the nursing home or other facility of your choice rather than a plan-specified facility.  
  • The ability to have your own physician certify your need for care.


7. How Do I Know The Company Is Solid?

If you buy insurance when you’re younger, to save on premiums, you need some certainty that the company you choose will still be in business 20, 30 or 40 years in the future.


Financial advisors recommend picking an insurer with billions of dollars in assets and top ratings. Check www.ambest.com, www.moodys.com, or www.standardandpoors.com to determine a company’s rating.


It’s wise to call your state insurance commissioner to learn whether companies you like have a history of raising their rates (because they offered unnaturally low prices to entice consumers or underestimated the cost of payouts). You should also ask what complaints have been lodged against them, if any, and whether they’ve been the object of lawsuits.



Helping Employees Make The Decision


Now that you’re learning the facts about LTC insurance, share the information with employees.


Also share the information with your parents, if they’re living and encourage your employees to do the same.


  • Ask an expert from your state Office on Aging to give a presentation on long-term care and what services are available in the community. Your local office can help with referrals for services, and many localities have robust programs for seniors and people with disabilities.
  • More than half of U.S. states have entered into partnerships with private insurers to help people purchase LTC insurance and protect their assets.
  • With these policies, states help consumers qualify for Medicaid and still retain some of their assets if an LTC policy does not sufficiently cover the cost of care. Your state insurance commissioner can send materials to explain the policies. (Visit www.naic.org/state_web_map.htm for contact information.)


For More Information


Get more information about long-term care insurance at these Web sites.


The Department of Health and Human Services’ clearinghouse for LTC information, including a free planning kit and costs of care in each state



SmartMoney calculators to compare LTC policies



The National Association of Insurance Commissioners’ special section on LTC insurance


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