Long-Term Care Insurance Policies Are Right For Some — But Not All
2006-05-20 Christian Millman
Ads for long-term care insurance are often full of gloom and doom. You feel great today, they say, but what about tomorrow? Will you be able to look after yourself? Do you want to be a burden to your children? Can you afford all those nursing home costs?
The solution, you're told, is long-term care (LTC) insurance--a form of insurance you buy when you're relatively young and healthy that's designed to pay for the cost of caring for you when you're not. Home care, assisted-living facilities, and nursing homes are usually covered by it.
"This market is one that's built on fear," says Robert Weagley, chair of the department of consumer and family economics at the University of Missouri, Columbia. "That's the tactic many of these insurers use."
Fear certainly sells many. The number of people buying LTC insurance has more than doubled in the last five years, with about 1 million policies now selling each year.
Scare tactics notwithstanding, many of the folks snapping up this type of insurance are making a sound financial decision, one that can protect them against the skyrocketing cost of senior care. "You can see a lifetime of savings go down the drain very quickly," says Harry S. Margolis, a lawyer in Boston and founder of the Web site ElderLawAnswers.com, which discusses legal and financial issues affecting senior citizens.
Savings can disappear fast because, if you need it, each year in a nursing home averages around $55,000. In more expensive metro areas, it can easily be twice that. And consider this--a year in a nursing home is expected to approach $200,000 two or three decades from now, just when baby boomers are likely to need one most.
The question of who needs long-term care insurance--and, just as important, who doesn't--is a vexing one. Without it, you could face insurmountable bills at a time when you're least able to pay them. With it, you could face a formidable financial burden caused by the high price of the insurance itself.
WHO DOESN'T NEED IT
If you haven't finished saving for your retirement, you should almost never consider buying LTC insurance. "You're better off taking the money you'd spend on a policy and putting it into your retirement accounts," says Weagley. "It doesn't make any sense to not have enough money to retire on but to have enough insurance to lie in a nursing home bed."
In a related vein, people who can't easily afford the premiums shouldn't consider LTC insurance. Sounds obvious, hut some insurance agents have a remarkable ability to talk people into buying, Weagley says. That potential for high-pressure sales tactics is why there's a 30-day "free look" period by law on each LTC policy. You have a month to cancel the policy and receive a full refund if you feel you got fast-talked and really don't need LTC insurance.
And how much are these policies? The range can be substantial, depending on which bells and whistles you add and how old you are when you purchase the policy. A 50-year-old in good health could pay $1,000 a year for an average plan that includes inflation protection (an important factor since the cost of nursing care is rising so rapidly). A 65-year-old could be looking at $7,000 a year for the same plan.
WHO MIGHT NEED IT
The most compelling reason to buy LTC insurance is if you have significant assets and want to make sure they're still around for your heirs, says Karrol Kitt, associate professor of family economics at the University of Texas in Austin.
"This is about being able to pass something on to the kids," she says. If those sorts of legacy issues are important to you, a well-designed LTC policy can keep your estate from being whittled down to nothing by high nursing care costs. Note the phrase "well-designed." Since there is so much variation between LTC insurers and plans, it's important to find a policy that will fully protect yourself and your family.
You might also want to look at LTC insurance if you don't have enough retirement income to pay for an extended stay in the nursing home of your choice. You could be shuttled into a less-desirable (even dumpy) facility once your money runs out.
How long should you plan on being in a nursing home? Estimates vary, but most show that the majority of nursing home admissions are for a short period of time--three-quarters are for less than a year.
The other 25 percent of admissions can last for years, especially in the case of people who have had a disabling stroke or people with degenerative diseases, such as Alzheimer's. If such things are in your family history, and if it's important to you that you remain in a home of a certain stature, then LTC insurance may be worthwhile.
WHAT TO LOOK FOR IN A PLAN
A good LTC plan allows the policyholder to live in a variety of settings, including their own homes, while being attended to by a variety of healthcare providers.
The trickiest step in buying a plan is deciding how much coverage you need. These plans are not blank cheeks. Most have caps on how long and how much they'll pay. And the more they cover, the more expensive they become. Start by determining how much money you'll need to get by and pay bills when you reach the age of needing long-term care. Then figure out how much help you'll require, in the form of benefits, to cover those costs.
A single person with some savings might choose a policy that pays 50 to 80 percent of his or her expected costs, particularly if he or she is willing to sell a home before going into a nursing or assisted-living facility. A married couple might want a policy that pays a bigger benefit--80 to 100 percent of their expected costs--since one spouse may remain in the family home while the other enters a facility.
Deciding how many years of coverage to buy is another issue. Remember that most nursing home stays are for a year or less, says Susan Polniaszek, a policy analyst for the American Association of Homes and Services for the Aging and author of several books on long-term health care planning. She advises consumers who are on a budget to guarantee an adequate daily benefit first and foremost, and then worry about adding extra years of coverage to a policy.
If this is more than you are prepared to calculate on your own, consult a certified financial planner who specializes in estate planning and who doesn't sell insurance or any other form of investment. That way, you can be reasonably sure you're getting unvarnished advice.
WILL UNCLE SAM PAY?
The majority of nursing home residents in the United States--about two-thirds--have their bills paid by the Medicaid program. So, when the time comes, you just fill out a few forms and Uncle Sam pays, right?
It's not that simple. The federal government and states jointly operate Medicaid as a safety net for the poor. However, many nursing home residents who receive Medicaid aren't exactly indigent. While the law requires a senior to exhaust most of his or her savings before the plan kicks in, that person's spouse is allowed 'co keep the family home, a car, and half the couple's money (up to about $90,000). Furthermore, there are provisions in federal and state laws that create other ways for people to have Medicaid pay for their late-life care. These legal strategies are tricky, though. Contacting a lawyer who specializes in "elder law" issues is essential.
There are other pitfalls to relying on Medicaid. For example, a nursing home is usually the only option covered. And you may not be able to live in the nursing home of your choice. That could mean moving to a facility in a distant town, far from friends and family, and perhaps not as comfortable as a place you might choose for yourself.
ASK BEFORE YOU BUY
ARE YOU CERTIFIED?
Although it's not required, some agents elect to take a course offered by the Corporation for Long-Term Care Certification. A certified agent may better understand the nuances and ethics of selling LTC policies.
IS THE INSURER RELIABLE?
All insurers are rated by A.M. Best Company, which reviews and grades their performance. Stick with companies that A.M. Best gives a grade of A or better. (The grades go as high as A++, which designates the most dependable companies.) Ask your agent to look up this information or find it yourself on the Web at www.ambest.com.
WILL MY PREMIUMS INCREASE?
Ask your insurance agent to research whether a company offering an LTC policy has a history of increasing annual charges.
COPYRIGHT 2003 Meredith Corporation
COPYRIGHT 2003 Gale Group
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