Long-term care insurance keeps consumers looking ahead
The Lords enjoy their retirement now, knowing they have long-term insurance for future care. Photo by Michael McLoone
When Steve and Arlene Lord of Raleigh, N.C., sat down for an annual review with their financial planner, he suggested they start thinking about their long-term care insurance needs.
“We did our homework and looked at what different insurance companies had to offer,” says Steve, an Angie’s List member who is retired from a career in corporate finance in New Jersey. With their financial planner’s help, the couple soon purchased two individual policies from John Hancock.
Lord, 58, and his wife are among the roughly 8 million Americans who own a long-term care insurance policy, says Jesse Slome, executive director of the American Association for Long-Term Care Insurance. In a recent online Angie’s List poll, 30 percent of members age 50 to 69 reported they, too, had coverage.
“The main reason people are motivated to buy long-term care insurance is choice,” says Tom Burke of the American Health Care Association. “People value long-term care insurance because it allows them to stay at home or go to an assisted living facility.”
Many people mistakenly believe their long-term care needs are already covered, Burke explains. However, long-term care assistance isn’t typically paid for by health or disability insurance. In addition, government programs such as Medicare aren’t designed to cover care over long periods of time, and Medicaid will not pay until people have already used up the majority of their financial assets.
The ability to choose where you get care influenced Lord’s decision. “We want to live in a surrounding that’s familiar and comfortable to us, so having the option for home care coverage was important,” he says.
Long-term care insurance is probably one of the most complex products that exist, says Slome. “Every plan is different and limits on what they’ll pay out for long-term care vary considerably.”
A good policy will cover all levels of care in nursing homes and assisted living facilities. It will also cover home care, including home health aides, adult day care, respite care (temporary overnight care to relieve family caregivers), and fees for modifications to your home. About 15 to 20 insurers sell most of the long-term care policies today, including Genworth Financial, Mutual of Omaha and Prudential.
Annual premiums vary widely among companies, says Burke. Although you can customize coverage to match the amount you feel you can pay, premiums are determined by your age, the state you live in, your health and how much protection you select. For those in good health, insurers offer discounts, which you won’t lose if you become ill.
But higher daily benefits and optional features can increase your premium. Inflation protection, for instance, may add 40 percent to your premium, but can increase your daily benefit by about 5 percent each year.
“Inflation protection can cost more, but it’s crucial,” Burke advises. “If you signed up 15 years ago for a $50 per day payment, in today’s dollars that’s not enough.”
According to the 2010 MetLife Market Survey, the average cost for a private nursing home room is already about $7,000 per month, while an assisted living facility costs $3,293 monthly and home care runs about $20 per hour. Those rates will only continue to increase. The AALTCI estimates the average buyer is 57 years old and pays $2,150 in annual premiums. Lord and his wife each pay about $2,000 per year.
Member Bev Cowdrick, 62, of Durham, N.C., and her husband — who also have policies with John Hancock — experience firsthand how age and health matters when it comes to premiums. Her husband’s annual premium is $700 less than the $1,900 she pays because she’s one year older and has high blood pressure.
“For someone who has health issues, you don’t want to wait to buy until your risk factors may be so high that premiums are ridiculously expensive,” says Cowdrick, a licensed nursing home administrator.
The cost of premiums is one of the biggest deterrents in buying long-term care insurance, says highly rated insurance broker Dan Juliani of Juliani Insurance Services in Wellesley, Mass. And most of those with long-term care insurance have purchased it on their own, as only an estimated 8 percent of the country’s large employers include it as part of their benefit package. “People often decide they’ll just take their chances on being able to care for themselves,” Juliani says.
Another issue that concerns shoppers is news reports that the industry is in trouble. In recent months, many insurers reported losing money on long-term care insurance and some, like MetLife, stopped selling new policies. Others, including John Hancock, have asked state regulators for rate increases up to 40 percent.
Marianne Harrison, president of long-term care insurance at John Hancock, says they’re in the early stages of the rate increase process and have gained approval in some states. She declined to comment further, stating they need to inform policyholders first.
Lord says he and his wife have yet to be notified of any increase. “It’s a big chunk of extra money and we will want to think closely about the value versus cost,” he says. “Although my guess is that we will grit our teeth and pay because I’ve had too much experience in my family with the nursing home routine.”
Charles Amos, a financial adviser with MetLife in Rockville, Md., says he asks clients to look at family health history in weighing coverage and whether they have relatives willing to care for them.
For those who choose insurance, experts recommend buying a policy at a younger age because it will be less expensive. “The magic number I use is age 45,” Amos says. Most get a policy much later in life — 54 percent apply between the ages of 55 and 64, according to the AALTCI.
To help with future care and avoid rate increases, some are choosing hybrid policies that include a package of long-term care insurance and life insurance. To avoid not using your money, hybrid alternatives offer a payout in the form of a death benefit or long-term care coverage.
“[They’re] excellent options if you have sufficient assets,” says Slome, who adds a typical buyer pays a one-time, upfront fee between $75,000 and $100,000. “It explains why the market for these plans is limited.”
The bottom line: People need to educate themselves and seek help when they shop for coverage, says Burke from the AHCA. “There is no one best policy, but with some research and discussion with your financial adviser and family, you will find a policy that affordably fits your present lifestyle and future needs."