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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 59 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 depressing 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 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 U.S. ranges from $55,000 to more than $250,000 annually, depending on the state and facility. 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 $55,000-plus annual expense 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 20 days, coincidentally the precise 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 $152 per day. So for a stay of several months, the out-of-pocket expense would be $12,160. Not chump change, but certainly 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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