Long-Term Care
Long-Term-Care Insurance for Less
Shorter-term policies save you thousands but still cover nearly every extended illness.
By Kimberly Lankford, Contributing Editor
From Kiplinger's Personal Finance magazine, December 2008
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The rap on long-term-care insurance is that it's pricey. You may be looking at $4,000 a year (if not more) to buy comprehensive protection against a monstrously expensive chronic illness that requires years in a nursing home or prolonged in-home care. Expenses that big can bust even a well-off retiree's budget.
But Medicare rarely covers such custodial care. So it's refreshing to see the insurance industry devising simpler, less-costly long-term-care policies. State governments are helping with partnership plans to defray some catastrophic expenses, provided you buy LTC insurance. They're also dogging insurers to treat claims fairly.
How to Cut Costs
All of that makes now a good time to shop for this insurance, but be prepared to make some trade-offs. A healthy 55-year-old who buys a fully loaded policy with lifetime benefits, a 5% annual increase in benefits and a waiting period of 60 to 90 days will generally still pay at least $4,000 a year. The savings come once you realize that you and your family do not need lifetime coverage.
The key to lower-cost LTC policies is that they pay for a maximum of three or five years. That is long enough to cover most home-care needs or nursing-home stays. At Genworth, the largest long-term-care insurer, the average claim is two and a half years. The American Association for Long-Term Care Insurance surveyed insurers and found that 92% of buyers who have three-year benefit periods and eventually file a claim do not exhaust their benefits.
There is a risk that you could develop a chronic condition, such as Alzheimer's, and blow through the benefit period. But about 25 states offer, or will soon offer, partnership programs that let you apply for Medicaid without turning yourself into a pauper once you run out of LTC insurance benefits. The rules are complicated and vary by state, but the principle is this: If your insurance pays a total of $200,000, for example, you can shelter $200,000 of assets from Medicaid above and beyond what the law allows.
Stephen Simmons, 55, and his wife, Kathryn, 57, have experience with crushing elder-care medical bills. Simmons had financial power of attorney for his father, who died in 2007 after a debilitating battle with heart disease. For three years, Simmons wrote $5,000 a month in checks from his father's funds to pay for help with his father's bathing, dressing, eating and other activities of daily living. "He saved his whole life, and he thought he had a nest egg that would take care of everything," says Simmons. "I watched the whole depletion of his savings."
The Simmonses didn't want the same thing to happen to them, but they didn't want to pay a fortune for insurance, either. So they compromised with a limited but flexible joint LTC policy from John Hancock that costs $1,700 a year for the two of them combined. Hancock's low-cost plan, called Leading Edge, was introduced in 2006.
The Simmonses each have a five-year maximum benefit period; but if either Stephen or Kathryn develops a chronic illness, he or she can use all the available coverage. In effect, a husband and wife are insured for any combination up to ten years. "Statistically, that would cover most cases," says Simmons.
The pair also saved by choosing a reduced daily benefit of $100. The average private room in a nursing home costs $213 a day, according to the MetLife Mature Market Institute (rates top out at $352 a day in New York City). The average daily cost in Kansas City, near the Simmonses' home in Lee's Summit, Mo., is $140.
The Simmonses' $100 daily benefit rises with the annual change in the consumer price index. But the policyholders might have to pay part of the bills themselves. "We fall into a category where our net worth probably can take care of us, but I don't want to chance it," says Simmons. "We can cover some of it, but how much do we want to cover? I don't want to deplete our retirement savings." The couple do have the option to raise their benefit amount by 10% every three years, regardless of their health, if they pay more.
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Reader Comments (4)
Posted by: Jesse Slome at 11/11/2008 09:10:49 PM
Kudos as always to the editorial team at Kiplinger's for another timely, advice-filled look at long-term care planning. The question I'm most often asked is "what's the best age to start planning?" My answer is, "generally in your 50s for two very important reasons." The first (and probably most important) is the need to health qualify for long-term care insurance. Some 14% of applicants between ages 50 and 59 had their applications declined because of health. But between 60 and 69, that number increased to 23% (and it's 45% between 70 and 79). But the other reason, as Kim points out is the availability of newer policies that allow you to get some coverage now ... and add to it down the road. Each company sets their own standards for how much you can add in future years, and what health requirements (if any) you must meet. Bottom line: At least get the information you need to make an educated decision. You can find long-term care insurance professionals in your area on the American Association for Long-Term Care Insurance's website. Work with someone you are comfortable with. They should be more than willing to provide you with information and answer questions without any obligation. An educated consumer is our industry's best customer. Something I know both we and Kiplinger's would agree to. Jesse Slome Executive Director American Association for Long-Term Care Insurance
Posted by: Chris Perna at 11/12/2008 08:58:27 AM
Any article about LTC insurance that fails to mention cash policies is incomplete. Cash-type LTC policies provide monthly cash benefits directly to the insured to spend on the services they want, even care provided by family members! Cash policies offer maximum flexibility with no restrictions on the types of services covered and the simplest process for receiving benefits with no complicated claim forms required. Ultimately cash policies represent the best value in LTC coverage because they allow policyholders to extract the most benefits from their policy in the shortest amount of time. The policy is there to provide benefits and there is no better policy for the money than cash!
Posted by: Roger Balsam at 01/10/2009 04:09:09 PM
I disagree with a couple of things that Chris, Jesse and Kim mention (different issues with each) although much of what they say is accurate. First, Chris talks about the benefits of a cash policy and while the benefits he states are perfectly valid what is not said can, in some instances, be a problem. With cash polices you get the full amount of your monthly benefit whether you need it for care or not. You can use the money to pay the mortgage, car insurance or anything else you like, in addition to care costs. This may pose some problems when tax time rolls around as you may be liable for taxes on benefits not spent on health care. Also, if you need care for longer than the policy benefit lasts and you haven't set aside the money you didn't use for care your assets will take a hit you may not have planned on. With a reimbursement plan you can run out of benefits also but if you need less than the maximum monthly benefit the policy benefits will last longer. A benefit of a cash plan that Chris didn't mention is that it can be an excellent option for those planning to retire outside the US. Jesse and Kim point out the availability of getting some coverage and then adding more coverage down the road - generally with no underwriting. While this may seem an attractive option, the Future or Guaranteed Purchase option, as it is called, is fraught with usually unmentioned pitfalls. These include the fact that the future premiums are unknown for adding on coverage later. Additionally, there is the likelihood that the insured will stop paying the increased premiums for the additional coverage because the premiums have gotten way out of hand and will be well above what they would have been with an automatic inflation benefit increase option. This cessation usually happens long before the person may need care leaving them in potential financial peril. Another problem with this coverage is that the option to buy additional coverage usually ceases when you start receiving benefits unlike the several automatic inflation increase options which continue to increase benefits while you are receiving them. Jesse and Kim are correct in stating that you should seek a long term care specialist to help you decide on what policy and benefit options would work best for you. After all, you wouldn't go to an orthopedist if you had a heart problem.
Posted by: nancy altman at 12/26/2009 12:33:36 PM
i paid for long term care for 10 years with UNUM INS. CO.. i purchased it before 65. i was given notice that they were raising the rates and could not predict how high they would go. they gave me two weeks to make a decision to keep paying or let them keep the money I paid in or I would lose all the money i put in. Getting scared, I signed the paper to resign but they kept my $17,000 until I needed it. I now have no coverage, just the money which they have ,with no interest given by them. any advice on what I can do to protect myself for the future.or any insurance I can get? do you think I can get my money back???