What You Need to Know About Long-Term Care Insurance
The numbers may not be in your favor. More than 70 percent of Americans 65 and older will need long-term care, says Dr. Marion, author of Elder Care Made Easier. Medicare and insurance will not cover all long-term care needs. “People are concerned they'll run out of money before they run out of breath,” says Marion.
The facts make looking at long term care insurance a must-do.
Who needs LTC?
If you develop a chronic illness or become disabled and are unable to care for yourself for an extended period of time, you’ll need long-term care services. In 2011, the national average daily rate for a nursing home was $239 and the national average monthly rate for an assisted living facility was $3,477, according to the MetLife 2011 Market Survey of Long-Term Care Costs. Long-term care is expensive. If you have more than $3 million in investable assets for retirement you can self insurance, and if you have less than $50,000 you typically would turn to government assistance but those in the middle need a safety net, says Julie Murphy Casserly, author of The Emotion Behind Money.
Long-term care insurance can not only help cover the costs of late-life custodial care, (which can easily reach several hundred thousand dollars over a few years), but also has an asset-preservation planning tool, if seniors wish to preserve their wealth to pass on to the generations, says Kevin Worthley, a certified financial planner with the Retirement Planning Company of N.E.
Understand the fine print
Long-term care insurance however, is fairly complex. There are different policies on the market with different features and options. Do an apples-to-apples comparison. This means reading all of the policy's fine print and understanding how the company issuing your coverage plans to administer the policy you plan to purchase, says Paul Forte, CEO of Long Term Care Partners, the provider of the Federal Long Term Care Insurance program.
Figure out how much you need. Considerations include – whether you wish to insure for substantially all or a portion of your risk, the cost of living in the geographic location where you live now or plan to retire, the kinds of facilities you may wish to access and the rate at which you expect inflation to increase costs over time, points out Forte. Lifehappens.org, ltcfeds.com and the U.S. Department of Health and Human Services, (www.longtermcare.gov), are just a couple of the many long-term care resources online.
Get what you need
When you're trying to assess how much you need, take into consideration any income you might get from Social Security and pensions for example, that will still continue even when custodial care is required. “You may not need as much insurance as projected custodial care suggests,” says Worthley. At the same time, cost estimations may only include the “basics” and may be “average” for your state. If you were to require a private room or other “above average” living needs, you may require more coverage than the average.
You might also want to explore getting a “shared care” rider that gives you and your spouse access to each other's benefits if use up your own.
It's key to know whether coverage includes a nursing home stay, assisted living facility, adult day care, a combination of those things or what? Find out the amount of payout on a daily basis from the policy and how the company will handle payouts, says Marion.
What you should think about
For all the good that a long-term care insurance policy can do, there are some things to be aware of. Most long-term policies don't pay anything until the person has been in a nursing home for more than 90 days. If more than two-thirds of those going into nursing homes leave before 90 days are up, it is unlikely that most people will receive any benefits at all, warns Debra Speyer, a trusts and estates attorney with the law firm of Debra G. Speyer.
Premiums can and will continue to rise. John Hancock, one of the largest long-term care insurance companies hit many policy holders with a 23% increase this year, says Speyer. Look at the numbers. “Homeowners insurance premiums run from $300-$1,000 per year, typically, whereas long-term care insurance averages $3,500. Compare the fact that you can insure a half million dollar home annually for less than $800 with what you get for $3,500 in long-term care insurance premiums, and you will see that clearly the latter is not a good deal,” says Speyer.
If not LTC insurance, then what?
There are alternatives to long-term care insurance policies. The newer hybrid form of insurance combines life insurance and long-term care. The option offers solutions for long-term care, as well as a life insurance death benefit to surviving spouses or beneficiaries. This type of insurance eliminates the “use it or lose it” issue many have with other types of long-term care insurance, says Pete D'Arruda, president of Capital Financial Advisory Group.
Check out too, annuities that offer long-term care and/or healthcare riders. Some annuities double income payments for up to five years for healthcare. There are obviously some conditions for the double income to kick in, but it's an option to address long-term care, says D'Arruda.
Say Forte, “One of the biggest mistakes you can make is to think that long-term care risk is something that will not affect you personally, or that you can simply ignore it.”