Before it's over, many of us will end up in a nursing home.
This reader wants to know if long-term care insurance is a good idea. That's
funny; I've been wondering the same thing myself.
Stacy Johnson • May
6, 2016
When it
comes to insuring against disaster, you’ve definitely got to cover your car,
home and health. But what about insuring for something a lot more likely than a
car wreck, house fire or disease — old age?
Since
most of us will grow old, and many of us will end up needing skilled nursing
care, you’d think long-term care insurance would be a must-have. Which leads us
to this week’s reader question.
I liked
the article on disability insurance. Can you help explain long-term care
insurance? Who needs it? When to buy it? Who has the best policies? Thanks. —
Patti
Glad
you liked the article on
disability insurance, Patti. I’m also glad you asked about long-term
care. I’m turning 61 this summer — a bit past the prime age to start this type
of coverage — so it’s something I’ve been thinking about lately myself.
I’ll
lay out the basics about long-term care insurance, then reveal the path I’ve
personally chosen, as well as the logic behind it.
The reality
There
are two reasons everyone has to at least consider long-term care insurance. The
first is because it’s not unlikely you’ll one day need long-term care. The
second is because if you do require it, it could bankrupt you.
Statistically,
the odds of avoiding a nursing home stay aren’t great. According to The Wall
Street Journal, researchers at Georgetown University said 70 percent
of those 65 and older will need long-term care, either at home or in a nursing
home.
And the
cost is staggering. According to the U.S.
Department of Health and Human Services, the average cost for a
private nursing home room in the United States is close to $7,000 monthly, and
that estimate was from 2010. And the cost to insure against that expense?
According to the Journal, the premiums for long-term care insurance for a
55-year-old couple average $3,275 annually.
These
numbers can be depressing. After all, 70 percent is pretty high odds. And who
can afford either the $7,000 monthly expense ($84,000 a year) or the
$3,000-plus annual premium?
It may not be as bad as it looks
Feeling
down? It may not be as bad as it appears.
First,
while the stats quoted above suggest 70 percent of seniors will ultimately need
long-term care, they don’t prove they’ll require it for vast amounts of time.
According to the Centers for Disease
Control and Prevention, the average length of a nursing home stay is
a bit over two years. But for many it’s much shorter. Toward the end of his
life, my father required nursing home care to recover from a fall. But he
required it for only 20 days, coincidentally the exact number of days covered
by Medicare. In fact, both of my parents are now gone and neither paid a dime
for long-term nursing home care.
In
addition, even for those requiring it, many Americans won’t pay, or won’t pay
much. As I said, Medicare often
pays entirely for the first 20 days. Days 21-100 require
coinsurance of $161 per day. So for a stay of 100 days, the out-of-pocket
expense would be $12,880. Not chump change, but also not worth an annual
premium in the thousands.
Then
there’s Medicaid,
which often picks up where Medicare leaves off. While only those with few
assets qualify, that would include many American seniors.
Who should get it?
At the
end of the day, there’s no definitive answer. Rich people might as well buy it,
while those who can’t afford it will be forced to let it go and hope for the
best. Those in the middle need to consider a variety of factors, including
lifestyle, genetics, resources, risk aversion, and a desire to leave an
inheritance. All these factors, and more, will play into the final decision.
As for
me, while this is a decision I may someday regret, at this moment I’m not
inclined to pay for long-term care insurance. Other than my wife, I have few
heirs. While I hate the thought of paying for long-term care, I’ll most likely
have the resources to do so. Both of my parents were Alzheimer’s-free and
avoided nursing homes, as did their parents. Finally, my wife is much younger
than me, and is an adult nurse practitioner, so I theoretically will have help
close by.
Note
that many of these things can change in the blink of an eye and, more
importantly, are unique to my specific situation. Yours will likely be vastly
different. So if you’re in your 50s, spend an hour or two checking out LongTermCare.gov,
the National
Association of Insurance Commissioners Long-Term Care Shopper’s Guide and
the American
Association of Long-Term Care Insurance website. Then get a few
quotes, think it through and make the best decision you can.
Important:
If you can potentially afford to pay the premiums, the earlier you decide, the
better. Annual premiums for those in their mid-50s are much lower than for
those in their mid-60s, so procrastinate long enough and you may price yourself
out of the market. In addition, if you develop health issues while you’re
waiting, you may not be able to get it at all.
How to shop for it
Like
other types of insurance, premiums vary widely, so this is an expense you’ll
want to shop hard. You should check with both independent agents and
company-specific ones. You should seek only the financially strongest companies
that have been around for a long time because this is something you can pay for
decades before using it.
Other
things to keep in mind:
·
Inflation: A
policy benefit that grows with inflation will cost more — according to the
Journal, up to 50 percent more — but not getting it could mean an inadequate
payout decades from now.
·
Rising premiums: When
you buy a policy, it should come with stable premiums. But in response to
rising costs, some carriers have increased
premiums in recent years, including for existing policyholders.
Before buying a policy, you should be reasonably certain you’ll be able to keep
paying the premiums, both before and during retirement.
·
Exclusions: Like any insurance,
this type could come with exclusions that could render it useless in some
situations. The fine print counts. Read it.
·
Shared benefits rider: This
allows either party in a couple to use the other’s benefit. Since it
essentially doubles the available payout for each individual, it could be an
effective and inexpensive addition.
·
Waiting period: Also
known as the elimination period, as with disability
insurance, this refers to the amount of time that must pass before
benefits start. The longer the waiting period, the lower the premium.
·
Who provides the care: Home
care is less expensive than a skilled nursing facility. But some policies
require specific licenses before they pay. For example, some policies will only
reimburse for “home health care” agencies, which provide skilled nursing care.
But if all you need is help with bathing, getting dressed, etc., a “home care”
agency could suffice, and typically costs less.
In
conclusion, Patti, for both our sakes, I wish the decision about long-term care
coverage was cut and dried. It isn’t. Like many decisions we face as we get
older, all we can do is learn what we can, weigh the risks and do our best.
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About me - I founded Money Talks News in 1991. I’m a CPA, and over the
years I’ve also earned licenses in stocks, commodities, options principal,
mutual funds, life insurance, securities supervisor and real estate. Got some
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