Tips for Buying Long Term Care Insurance
- Buy from an established national company with financial strength. Remember: You're buying a policy you may not need to use for many years and you want the insurer to stick around.
- Look for flexibility. Make sure your policy will pay for home health care, nursing home care, or even respite care, which gives caregivers a break. Also be sure the policy will cover Alzheimer's and other long-term cognitive disorders
- Buy the inflation rider. A payout of $100 a day would be worth only $76 a day after 10 years of 3% annual inflation.
- Shop around. Insurers have the right to change premiums. Don't just look for the lowest initial premiums. Insurers with low prices now might raise rates later.
- Should you buy long-term care insurance? It depends. The odds of spending many years in a nursing home are fairly low if you're in good health and have no family history of Alzheimer's or stroke. But if you fear being a burden to your family, or if you don't want to wind up in a nursing home paid for by Medicaid, you might consider a long-term care policy.
- There's no sense in buying long-term care insurance if you're behind on paying your bills or funding your retirement.
At least half of the population 85+ will need help with some of the activities of daily living. Such care is provided when someone can no longer independently carry out essential everyday activities like eating, bathing, dressing, etc. Most people think of long-term care as something needed by older people, but accident or illness can strike someone of any age. When it does, they too may find themselves in need of assistance.
Traditionally, women in U.S. families have provided this care when needed. However, today’s smaller families may be scattered across the country, and many women are now working outside the home. What’s more, caring for a loved one full-time can overwhelm even the most devoted family member. As a result, more caregivers than ever are turning to outside resources to help with the care of a family member.
Many people automatically think of nursing homes when they think of long-term care, but there are other options available as well, some provided in your own home or others in the community.
Do retirees need long-term care insurance?
Health care costs are a big concern for people going into retirement, but the costs of long-term care can still be a shock.
Here are a few facts:
• 70% of people over 65 will need some form of long-term care at some point. Statistics show that at least 6.4 million people aged 65 or older today will need long-term care within one or two years after turning 85.
• For married couples, the chance that one spouse will need long-term care rises to 91%,
• People living alone are more likely to need some sort of home health care.
• Women outlive men, and thus, are more likely to live alone and need some sort of home health care.
So, while some financial planners previously were on the fence about purchasing long-term care insurance, most were still encouraging people to at least have a plan for long-term care.
Since long-term care insurance provides the elderly or infirm with the opportunity to stay in their homes, this is an important factor in the selection process. If this is where the insured wishes to be, as opposed to a facility like a nursing home, long term care is probably the right choice.
Several things were working against the broad appeal of long-term-care insurance over the years. A major problem is the expense. The insurance industry has seen some dramatic rate increases in the past several years as a result of new drugs and better care to extend lives. As a result several insurance providers got out of the business entirely as it became less profitable.
How your net worth should determine your decision to purchase.
Be aware that straight long-term care premiums don't offer a guarantee against premium hikes.
If you have no money and have need, Medicaid will pay for it. But you have to be broke. If you have a lot of money you can pay your expenses out of pocket. It's the people in the middle, $100,000 to $1 million in net worth that have the problem. A few years of paying for long-term care can wipe out entire savings and leave you have flat broke. These are the people who should be willing to spend a few thousand a year for long term care insurance as protection.
Some say “It’s very expensive and I don't know if I'll need it, so I'll just do nothing." These are the people who blow through their savings.
At what age should you consider purchasing long term care insurance?
Stand-alone long-term care insurance is an imperfect financial hedge to a complex situation. And for many people it doesn’t make sense to pay for a policy that may never deliver its promised benefits.
While insurance premiums are lowest when you’re younger, you may not need it for decades, if at all. In the interim, most policy owners face premium increases, which is why many people let the policy lapse, leaving them with no coverage and no compensation for money spent on premiums.
Lifetime long term care coverage is no longer offered by most insurers, and unlike basic health insurance, you can be rejected for a policy based on health history. Some 45% of applicants age 70 or older were denied coverage.
Check the credentials of your advisor
Remember that the insurance professional advising you likely has a financial stake in selling you a policy. Consider one who follows a fiduciary standard that should put your best interests first. You should work with a professional who asks for a complete picture your family’s financial resources and evaluates this along with your health and the health risks of your family prior to selecting a policy or possibly recommending against a purchase.
Be aware there are now a number of newer products called hybrids which add on long-term care benefits to life insurance and annuities which may be appropriate; however they add even more layers of cost and complexity. Another reason to select an advisor to help in the selection process.
To reiterate, for your protection you should consider consulting an elder law attorney and a fee-based financial planner who doesn’t make money from recommending insurance policies to assist you. This is the best way to make sure you are receiving objective advice.
RetiredBrains has researched some of the companies that provide long term care insurance. If you wish to check them out go to our Plan for Long Term Care page.
The information on this page is provided to assist the reader in making decisions, but should not be substituted for the advice of health care advisors, attorneys or professionals with expertise in these areas.