Almost half of people over age 65 will spend some time in a nursing home.1Not only are we more and more likely to require some type of senior care, but the costs involved in nursing home care are inordinately expensive. In fact, the average annual cost involved with a one-year nursing home stay is about $50,000.2 In many larger cities it can be much more expensive. Unfortunately, none of these expenses are covered by Medicare or private medical insurance. Many of us spend thousands of dollars making sure we have things like auto insurance and fire insurance on our homes—and never complain that the money is wasted. The truth is that for every 1,000 people, 5 will have a house fire, 70 will have an auto accident, and roughly 500 will need long-term care. The average claims associated with these losses are $3,428 for a house fire, $3,000 for an auto accident, and $50,000 a year for long-term care.3 As obvious as these statistics are, many people are still under the impression that they don’t need to worry about long-term care (LTC) coverage. What’s more, less than 10 percent of those over age 65 have purchased LTC insurance.4 So, why not insure against one of the most devastating costs of life—Long Term Care?Fortunately, a record number of seniors are beginning to buy long term care insurance. This is most likely due to increased education and the startling statistics we’re seeing. Most the individuals that come to me for their long term care insurance needs, do so in order to protect their assets and to insure a choice in the quality of care that they deserve. Of these individuals, the majority that end up needing the care can remain independent, don’t burden family members with constant 24-hour care, and don’t alter their standard of living. For the majority, this is what makes LTC insurance such an obvious choice.When selecting a policy, it’s important to select a policy that not only you can afford but also meets your needs. There are many insurance policies covering LTC available today. Policies can vary widely in terms of benefits they’ll offer, terms of the contract, and features. Choosing the right policy is not simple. Individuals looking to purchase coverage should consider the followingfive important factors:
The insurer’s financial strength rating. You obviously want a solid “A”rated company that’s been around for awhile. They are the most likelyto keep your premiums stable and honor your claims without hassle.
Cost-of-living adjustment (COLA). COLA increases your chosen dailybenefit each year in order to keep up with inflation. For example, thedaily benefit amount might increase each year at a compounded orsimple rate of 5%. With the health care costs skyrocketing, this benefitis crucial.
Home health care and custodial nursing home care. This gives youthe option to stay at home and receive care as well as receive nursinghome care, if needed. Most people would prefer to have the option of inhome care.
Qualified policy. Purchase a policy that is “qualified” for tax purposes. Currently both qualified and non-qualified policies are generallyconsidered tax-free. However, the IRS could technically deemnon-qualified benefit payments taxable in the future.
Guaranteed policy. Is the policy guaranteed for life? Make sure theinsurance company can’t cancel your policy due to bad health.While long term care insurance might not be cheap, neither are the costs it covers. For most of us, the solution to all of this is to obtain insurance as early as possiblewhen premiums are lower and before any pre-existing conditions arrive. Butwhat is the solution when seniors are older and coverage is more expensive? While I believe that you should have complete coverage, there are severalways to keep premiums down. To reduce premium costs consider theseoptions:
Lengthen the elimination period. The elimination period is a lot like a deductible. The longer the elimination period (deductible), the less expensive the insurance will be. However, this means you will have to pay the expenses for the first 30, 60, or 90 days of care. Having a 90-day elimination period can cut premium costs considerably.
Choose a shorter period of coverage. Instead of choosing lifetime coverage choose a coverage period between three to five years. The savings can be significant and studies showthe average nursing home stay is approximately 2 ½ years.5
Choose a lower daily benefit. The average annual cost of private nursing home care is about $150 per day.6 If you chose just $100 per day, you could lower your premiums, if you end upneeding the coverage, you could make up the difference with other forms of income, such as social security.
Get a joint policy. If you are married, you could get a joint policy that covers both you and your spouse at a discount. Most major companies offer this. If you had to make a choice on whom toinsure you should choose the wife; they are more likely to enter a nursing home due to a longerlife expectancy.The biggest objection I hear regarding long term care insurance is that some people feel the money is wasted if they never end up utilizing the coverage—It really doesn’t have to be that way. Recently the insurance industry has introduced a new alternative that combines life insurance and LTC benefits into one policy. This type of policy insures that either you or your beneficiaries get back the amount you start with, if not more. Here’s an example: Lets assume you deposit $50,000 and you’re a 65-year-old male. The insurance company might provide you with up to $279,195 total long term care benefit. If you don’t end up needing the LTC, the insurance company will provide your heirs with a guaranteed death benefit of up to $93,065 income tax free.7 It’s not for everybody: These types of policies typically require a large upfront deposit, but for some people, this is a good way to turn an otherwise low paying investment or bank account into the protection they so badly need.Long-term care insurance is more complex than many other forms of insurance, so I recommend working with a qualified investment advisor in order to find a suitable plan you’re comfortable with.
The insurer’s financial strength rating. You obviously want a solid “A”rated company that’s been around for awhile. They are the most likelyto keep your premiums stable and honor your claims without hassle.
Cost-of-living adjustment (COLA). COLA increases your chosen dailybenefit each year in order to keep up with inflation. For example, thedaily benefit amount might increase each year at a compounded orsimple rate of 5%. With the health care costs skyrocketing, this benefitis crucial.
Home health care and custodial nursing home care. This gives youthe option to stay at home and receive care as well as receive nursinghome care, if needed. Most people would prefer to have the option of inhome care.
Qualified policy. Purchase a policy that is “qualified” for tax purposes. Currently both qualified and non-qualified policies are generallyconsidered tax-free. However, the IRS could technically deemnon-qualified benefit payments taxable in the future.
Guaranteed policy. Is the policy guaranteed for life? Make sure theinsurance company can’t cancel your policy due to bad health.While long term care insurance might not be cheap, neither are the costs it covers. For most of us, the solution to all of this is to obtain insurance as early as possiblewhen premiums are lower and before any pre-existing conditions arrive. Butwhat is the solution when seniors are older and coverage is more expensive? While I believe that you should have complete coverage, there are severalways to keep premiums down. To reduce premium costs consider theseoptions:
Lengthen the elimination period. The elimination period is a lot like a deductible. The longer the elimination period (deductible), the less expensive the insurance will be. However, this means you will have to pay the expenses for the first 30, 60, or 90 days of care. Having a 90-day elimination period can cut premium costs considerably.
Choose a shorter period of coverage. Instead of choosing lifetime coverage choose a coverage period between three to five years. The savings can be significant and studies showthe average nursing home stay is approximately 2 ½ years.5
Choose a lower daily benefit. The average annual cost of private nursing home care is about $150 per day.6 If you chose just $100 per day, you could lower your premiums, if you end upneeding the coverage, you could make up the difference with other forms of income, such as social security.
Get a joint policy. If you are married, you could get a joint policy that covers both you and your spouse at a discount. Most major companies offer this. If you had to make a choice on whom toinsure you should choose the wife; they are more likely to enter a nursing home due to a longerlife expectancy.The biggest objection I hear regarding long term care insurance is that some people feel the money is wasted if they never end up utilizing the coverage—It really doesn’t have to be that way. Recently the insurance industry has introduced a new alternative that combines life insurance and LTC benefits into one policy. This type of policy insures that either you or your beneficiaries get back the amount you start with, if not more. Here’s an example: Lets assume you deposit $50,000 and you’re a 65-year-old male. The insurance company might provide you with up to $279,195 total long term care benefit. If you don’t end up needing the LTC, the insurance company will provide your heirs with a guaranteed death benefit of up to $93,065 income tax free.7 It’s not for everybody: These types of policies typically require a large upfront deposit, but for some people, this is a good way to turn an otherwise low paying investment or bank account into the protection they so badly need.Long-term care insurance is more complex than many other forms of insurance, so I recommend working with a qualified investment advisor in order to find a suitable plan you’re comfortable with.
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