December 18, 2012 — Long term care insurance is one of the more difficult products in the insurance world. Unlike most insurance products, the decision to buy it or not is not clear cut. While it’s easy to see why you need insurance on your car, home, or health – justifying long term care insurance is a a bit tricky. According to some reports, only 10% of people over age 60 have long term care insurance.
The market has not been kind to providers of long term care insurance. Some, including Prudential and MetLife, have stopped selling new policies in recent years, while others have had to ask for rate increases of over 40%. Life insurers sell some “flexible” life policies that provide a cash benefit before death as a kind of long term care hybrid. Recently we’ve seen some helpful articles on long term care insurance (see end of article). Here is a brief primer; we recommend the references to get a fuller understanding.
Long term care insurance provides coverage if you need extended care – from assistance in getting dressed to skilled nursing care – at some point in your life. Depending on the policy, it can insure for care given in your own home, or it can cover assisted living or care in a nursing home. If you ever need this care it is expensive. The average national cost of a semi-private room in a nursing home is $81,030, while the cost at an assisted living facility is $42,600. A full-time home health aide costs about the same as staying at a nursing home.
The debate over buying long term care insurance centers around these questions:
– Will you ever actually need it (you might die first or just need it a short time)
– Can you afford to self-insure
– Can you afford the premiums now and in the future (it is expensive and getting more so)
– Can you qualify – insurers tend to disqualify the people they deem likely to need it
A complex decision
To help you make a better decision here are some thoughts for you to consider:
– Neither Medicare nor your medical insurance will cover the cost of long term care
– If you cannot afford nursing home care Medicaid will pay for it – but only after almost all your other assets have been used up
– The longer you live the more likely you are to need long term care
– A benchmark policy might provide a benefit of $150 a day for up to 3 years
– An average yearly premium for the above policy might cost about $1720/year for an individual 55 years old in good health – but premium costs have a wide range
– Think about how long you might need long term care coverage. With the cost of a nursing home stay averaging over $80,000 a year, how many years could you afford?
– Do you have enough money to self-insure?
– Even if you do have enough money to self-insure, would you rather be protected so you could leave that money to your heirs?
– Do you have relatives or children who might want to take care of you?
– If you have limited income paying long term care insurance premiums might not make much sense, and Medicaid might pick up the tab for your long term care relatively quickly
– What type of care are you buying insurance for – in-home care, assisted living, or nursing home? Some plans cover all 3, some are limited.
– What is the trigger for a claim? The congressional Budget Office estimates that only 45% of those turning 65 will need nursing home care at all; only 9% will need it for five years or more
– How much can the premiums go up in the future? Could you be forced to drop coverage just when you need it?
– How much $ coverage are you purchasing, and how long will it last? Is it inflation protected?
We believe the best path to answer to this issue is for you to carefully research it yourself. Talk to several agents or companies that sell this insurance and get an understanding of the issues as they apply to you. Delve into the ins and outs of the various policies – what is covered and what is not – because they will vary considerably. Look online for discussions of the pros and cons of long term care insurance. Talk to your financial advisor before you buy. And don’t rush into any decision.
For further reference:
The Long Term Care Insurance Gamble
Cost Estimates from Association of Long Term Care Insurance
AARP – Understanding Long Term Care Insurance
MarketWatch: Long Term Coverage Worth the Price?
Comments? We would love to know what our members are doing about Long Term Care Insurance. Have you bought a plan, and are you happy with it? Or did you decide not to buy? Please share your experiences in the Comments section below.