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What You Should Know About Long-Term Care Insurance
Should I buy long-term care insurance?
This decision should be part of any overall financial planning you do. Some things to consider:
- Make sure you have a good reason to buy. Your goals should be to protect your assets, minimize dependence on other family members, and control where and how you receive long-term care services.
- Long-term care insurance can be expensive, particularly for older people. Learn as much as you can about long-term care insurance and various policies, and consider your individual circumstances.
- Be wary of buying if paying for the premiums means lowering your standard of living or giving up other things you need.
- Keep in mind that you will probably be paying premiums for a number of years. Will you still be able to afford the policy if your circumstances change or if premiums increase?
- If you would quickly qualify for Medicaid if you needed long-term care, a long-term policy would not make sense for you. That is, you would spend your savings in a short time (within six months to a year) if you were paying out of pocket.
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When should I buy long-term care insurance?
The older you are, the greater your chances of one day needing long-term care services. However, the older you are at the time you buy long-term care insurance, the higher your premiums will be. Therefore:
- Buy while you are still insurable, before illness, accident, or disability strikes.
- Buy after you have learned more about long-term insurance and have received unbiased guidance. Consult the state health insurance assistance program (SHIP) available in your area.
- If you buy when you are younger, premiums will be lower. However, you will be paying them for a longer period of time.
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Where can I buy long-term care insurance?
You can purchase long-term care insurance from a number of sources:
- Insurance agents and brokers, including companies that sell many other kinds of insurance
- Some financial planners
- Some continuing care retirement communities
- Banks
- Employers who offer it as part of a benefits package
- Large membership organizations
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What choices do I have if I buy long-term care insurance?
It depends on the coverage you want or need:
- Nursing home only
- Home care only
- A whole continuum of care (nursing home, assisted living, adult day care, etc.)
- Daily benefit: $50 to $400
- Benefit period: generally two to six years or a lifetime
- Elimination (deductible) period: 0 to 100 days. This is the period of time before the insurance takes effect during which you pay all expenses yourself.
- Inflation protection - protects the value of your coverage over time
- Non-forfeiture: non-forfeiture benefits means that if you stop paying premiums that you still receive some benefit from the policy. (NOTE: While non-forfeiture coverage is good to have, this protection will significantly raise your premiums. Consider carefully if you can afford to pay 10 to 100 percent more.)
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What should I look for in a policy?
Make sure that any policy you are considering buying:
- Does not require prior hospitalization to receive benefits.
- Is guaranteed renewable as long as you pay the premiums. This does not mean that premiums cannot be raised.
- Offers a premium waiver while you are receiving benefits.
- Has one deductible for the life of the policy.
- Covers pre-existing conditions, without a waiting period, if these are disclosed when you apply.
- Offers five percent (5%) compound inflation protection.
- Allows policyholders to upgrade or downgrade their coverage if they can not afford premiums.
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How much will this cost me?
Long-term care insurance is expensive. Costs vary widely, based on your age at the time you apply and the options you choose. The Health Insurance Association of America provides the following estimates for a policy that provides $100 a day for nursing home care, $50 a day for home care, a 29-day elimination period (deductible), four years of coverage, and five percent inflation protection. Remember, the cost of these services will be much higher in 15 years, when most policies will be used.
Less than $888 a year at age 50
Less than $1,850 a year at age 65
Less than $5,880 a year at age 75
These are averages based on the latest data available (1997-98). You may find you have to pay more for a policy that provides the kind of protection you want.
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