What is long term care insurance?
Long term care insurance is commercial
insurance. Like other private insurance
the terms and costs vary substantially
among companies. LTCI usually pays a fixed
amount per day for qualifying care. The
periods of coverage may range from two
years (none we have found covers only
one year) to life. There are many variables
that affect the cost of premiums: length
of the deductible period, period of coverage,
amount of daily benefit, whether there
is an automatic inflation factor built
in, what kinds of care are covered, and
others.
The range of benefit and feature mixes is complicated and the wording
of policies can be confusing. Expect to look at several policies
and do a lot of reading before making a decision about this coverage.
A well-chosen policy can be a godsend but a poor choice can be an
expensive disappointment.
Major Concern: Long-term stability of insurer
Long term care insurance is usually purchased many years before
need, so it is important for the company selling such coverage to
be solid. The cheapest policy may not be the best buy; if a company
offers policies for too little it must either increase premiums
or risk not surviving to pay off later.
Many advisors suggest buying only from companies with five or even
ten years of experience in the field. All consumer advocates emphasize
that any firm considered should be well rated by at least two of
the major insurance rating firms. (See the Resources at the end
of the article @ note 1.) Some consumer advocates consider only
a handful of long term insurance companies sufficiently sound to
depend on coverage long into the future.
Do You Need It?
- Women are more likely to need nursing
home care than men, especially married
men, and they are less likely to have
incomes and resources to pay for it.
Married men are likely to be cared for
by spouses, while women on average live
longer, into ages at which disabling
illnesses are common.
- What are your resources? If you are
single with less than about $50,000
in resources plus a home, or married
with combined assets of less than $75,000
plus a home, the cost of long term care
insurance may not be justified by the
amount of resources to be protected.
- What is your personal and family health
history? Your health must be good to
get coverage. Your risk of needing long
term care is a mix of heredity, the
way you care for yourself, and luck.
Someone with several close family members
with Alzheimer’s may be likelier
to need long term care than one whose
history suggests a likelihood of dying
of a heart attack at 79.
Can you afford
it? Will you be able to afford increases?
These policies are expensive, so you do not want to purchase one
without being reasonably confident that you can pay the premiums
even if they increase. While you can find policies with “non-forfeiture”
features, they are prohibitively expensive. Many experts recommend
paying no more than 5 to 7% of your annual income for long term
care insurance premiums. For a 65 year old, a policy with a fair
mix of benefits including inflation protection might cost upwards
of $1,000 a year. For the 50% or so of retirees whose incomes are
less than $16,000 per year, long term care insurance is simply too
expensive, especially when added to medical costs not covered by
Medicare.
Premiums are much cheaper if a policy
is purchased at an earlier age, but that
is no guarantee that premiums will not
increase in the future. While premiums
may not be increased for one person, because
of illness, for instance, they may be
increased for a whole class of persons
if that is necessary for the company to
remain able to pay claims.
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