A new
breed of policy is taking off, but it can be pricey
by
Ellen Stark, AARP Bulletin,
March 1, 2018
En español
| By the time you reach 65, chances are about 50-50 that you’ll require paid long-term care
(LTC) someday. If you pay out of pocket, you’ll spend $140,000 on
average. Yet you probably haven’t planned for that financial risk. Only 7.2
million or so Americans have LTC insurance, which covers many of the costs of a
nursing home, assisted living or in-home care — expenses that aren’t
covered by Medicare. “Long-term care is the unsolved problem for so many
people,” says Christine Benz, director of personal finance at Morningstar, an
investment research firm in Chicago. Here’s what you need to know about LTC
insurance today.
Nicolas Rapp
1.
Traditional policies have fewer fans
For
years, long-term care insurance entailed paying an annual premium in return for
financial assistance if you ever needed help with day-to-day activities such as
bathing, dressing and eating meals. Typical terms today include a daily benefit
of $160 for nursing home coverage, a waiting period of about three months
before insurance kicks in and a maximum of three years’ worth of coverage.
But
these stand-alone LTC policies
have had a troubled history of premium spikes and insurer losses, thanks in
part to faulty forecasts by insurers of the amount of care they’d be on the
hook for. Sales have fallen sharply. While more than 100 insurers sold policies
in the 1990s, now fewer than 15 do. “This is a classic story of market
failure,” says Howard Gleckman, a senior fellow at the Urban Institute, a
nonpartisan think tank in Washington, and the author of Caring for Our Parents.
“No one wants to buy insurance, and no one wants to sell it.”
2. You
might not need insurance… but you need a plan
Premiums
for LTC policies average $2,700 a year, according to the industry research firm
LifePlans. That puts the coverage out of reach for many Americans. (One bright spot
for spouses: Discounts for couples are common — typically 30 percent off
the price of policies bought separately.) If your assets are few, you may
eventually be able to cover LTC costs
via Medicaid, available only if you’re impoverished; if you have
lots of money saved, you likely can pay for future care out of pocket. But
weigh factors other than cash: Do you have home equity you could tap? Nearby
children who can be counted on to pitch in? Or do you have a family history of
dementia that puts you at higher risk of needing care?
If
you’re pulling less than 4 percent out of your savings each year for living
expenses, you may be comfortable going without insurance, Benz says. In that
case, though, you’ll need to plan for that possible expense. That means saving
more than you may have planned, and segregating your LTC kitty from the
portfolio you tap for everyday income.
Nicolas Rapp
3.
There’s a new insurance in town
As
traditional LTC insurance sputters, another policy is taking off: whole life
insurance that you can draw from for long-term care. Unlike the older variety
of LTC insurance, these “hybrid” policies will return money to your heirs even
if you don’t end up needing long-term care. You don’t run traditional policies’
risk of a rate hike, because you lock in your premium upfront. If you’re older
or have health problems, you may be more likely to qualify, says Stephen Forman,
senior vice president of Long Term Care Associates, an insurance agency in
Bellevue, Wash.
4. But
old-school policies are cheaper
If all
you want is cost-effective coverage — even if that means nothing back if you
never need help — traditional LTC insurance has the edge. “Hybrid policies are
usually two to three times more expensive than traditional insurance for the
same long-term care benefits,” says Scott Olson, an insurance agent and
co-owner of LTCShop.com in Camano Island, Wash. With hybrids, you’re paying
extra just for the guarantee of getting money back.
A
hybrid policy may make the most sense if your alternative is to use your
savings, says Forman, or you have another whole life policy with a large cash
value. “You can roll over an existing life insurance policy or annuity, and
that’s a huge part of the business,” he says.
5.
Speed and smart shopping pay off
If you
want insurance, start looking in your 50s or early 60s, before premiums rise
sharply or worsening health rules out robust coverage. “Every year you delay,
it will be more expensive,” Olson says. Initial premiums at age 65, for
example, are 8 to 10 percent higher than those for new customers who are 64.
As for
where to shop, seek out an independent agent who sells policies from multiple
companies rather than a single insurer. For extra expertise and a wider choice
of policies, Olson says to look for agents able to sell what are known as
long-term care partnership policies — part of a national program that has
continuing education requirements for insurance professionals.
Ellen
Stark, a former deputy editor of Money, has written
about personal finance for more than 20 years.
https://www.aarp.org/caregiving/financial-legal/info-2018/long-term-care-insurance-fd.html?intcmp=AE-CAR-LEG-EOA3
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