Planning for long-term-care costs becomes more pressing every day, but the insurance that helps cover those costs is surging in price, while the benefits are becoming skimpier.
As costs rise, health care experts are engaging in a fierce debate about whether the coverage is worth the years of premiums. Even when people do go into a nursing home, those bills may not be as enormous as many people believe. The overall cost of new long-term-care coverage has jumped roughly 9% over the past year, according to the American Association for Long-Term Care Insurance, a trade group.
Meanwhile, the most comprehensive benefits — such as lifetime coverage and 5% compound inflation protection — are now out of reach of most consumers because insurers have either stopped offering the benefits or made them unaffordable. So consumers must decide whether limited coverage is better than none at all.
There are four things to consider when deciding if long term care insurance is right for you.
- Assess your risk. To find the right policy, first determine the type of risk you’re trying to cover. Consider your health, hereditary conditions and longevity in your family, availability of family caregivers, and personal preferences.If you want to remain at home and have family members who can provide some care, for example, you may want to buy a policy with a relatively low benefit level. With the national median rate for a home health aide at $20 an hour, the policy could provide enough to cover the cost of an aide for 2.5 hours a day to give relatives a break. There are small policies that can allow you to remain at home without overburdening family caregivers or a policy that would cover most of the bills at a facility, however, these policies cost considerably more.To find the cost of home care, adult day health care, assisted-living facilities and nursing homes in your community, go to www.genworth.com/costofcare.
- Cut the cost. Once you’ve considered the type of risk you’d like to cover, ask yourself, “how much of that risk can you transfer to the insurance company, and how much can you tolerate on your own?”The first step is to choose a deductible, also known as the “elimination period,” which is the number of days between the time you become eligible for benefits and the time the insurer starts paying.Many policies offer a 90-day elimination period, but prepare to spend $22,500 out of pocket for nursing-home care until benefits kick in. The longer your elimination period, the lower your premium will be. A 90-day elimination period costs about 40% less than a zero-day deductible. Choosing a shorter benefit period will also cut your cost. A benefit period of three to five years is typical coverage for long-term-care needs.
- Buy early. People who determine that they want a policy have good reason to buy sooner rather than later — ideally while in their fifties.Premiums will climb with each year you age.Buying while still in good health has become more important as insurers tighten underwriting standards. Some companies have added blood-test requirements and started scrutinizing family health history for conditions such as heart disease and dementia.One-fourth of applicants age 60 to 69 are rejected, and 44% of those age 70 to 79 are denied coverage, according to the long-term-care association. Most companies won’t issue policies to people over 75.
- Determine affordability. Premiums have been rising sharply in recent years because many assumptions insurers made when pricing policies in years past turned out to be wrong. Fewer people have dropped these policies than expected, and insurers have faced more claims than anticipated. At the same time, a long period of ultra-low interest rates has left insurers with lower investment earnings than they projected.
Insurers are allowed to raise premiums even after you buy the policy, so consumers must factor future premium increases into their budget. Some consumers seeking to avoid the risk of premium increases have gravitated toward hybrid products combining long-term-care insurance with life insurance. You typically pay a single upfront premium for a cash-value life insurance policy that will pay benefits early if you need long-term care or provide your heirs a death benefit if you don’t need care.
The attorney’s at Severns & Howard can discuss these four points with you to help you determine if a long term policy is right for you. Our comprehensive estate planning to protect assets for long term care addresses these questions during our initial consultation. Our comprehensive estate planning reviews your current documents, your assets, and discusses with you your goals for your distribution of assets upon your death, your current needs, and takes into consideration your future needs for long term care. For an appointment with one of our attorneys to discuss your long term care insurance options and review your estate plan, please contact our office at (317) 817-0300.