One in 10 middle-aged and older Americans has long-term care insurance, but that number is likely to grow.
In 2011, the oldest of 77 million boomers will turn 65 and live an average of 18 more years. As those boomers march toward Golden Pond, some will find they can’t care for themselves anymore.
Nationally, the average cost of a private room in a nursing home is $192 a day, according to the MetLife Mature Market Institute. The average rate for home health aides is $18 an hour.
But financial planners say many people who consider buying long-term care insurance become confused and frustrated.
“It’s such a hodgepodge that people often get overwhelmed and throw up their hands,” said Sharon Luker, a certified financial planner with LTC Planning Consultants in Plano, Texas.
Luker and other financial experts say these are the most common questions asked by prospective buyers:
Who should buy it?
Insurance experts say long-term care coverage is best suited for people whose net worth is more than $100,000 but less than $1.5 million, excluding their houses.
Some people considering long-term care insurance try to calculate their odds of needing help.
Half of women and a third of men over 65 will stay in a nursing home sometime during their golden years, Ruddock said.
On one hand, about half of those stays last less than three months and may be affordable. Yet more than a third are longer than a year and capable of wiping out nest eggs.
“If Alzheimer’s disease or another chronic illness runs in your family, you’ll be at greater risk,” said Ana Smith-Daley, a deputy commissioner for the Texas Department of Insurance.
When should you buy?
Many financial planners recommend 50 as a good age to decide about long-term care coverage, before your health slips and makes you less insurable.
The younger you are when you buy a policy, the lower your premium will be – although it’s also true that the younger you are, the longer you’re likely to pay premiums.
“Long-term care isn’t for just old people,” said Karen Ignagni, chief executive of the American Association of Health Plans. “Four of 10 people receiving long-term care are between 18 and 64.”
How much is enough?
“One size doesn’t fit all,” Luker said. “Work with a trusted insurance agent who can tailor a policy to your particular needs.”
Here are some points to keep in mind:
Comprehensive coverage? Financial planners recommend a policy that covers not only nursing home care but also assisted living, home health care and adult day care.
Daily benefit? It should be enough to make up the difference between your income and the cost of your care, Crooms said.
A good rule of thumb is $100 per day, Ignagni said.
Don’t forget to look at the cost of care in the city where you plan to retire, if it’s not where you’re living today, financial planners say. Costs vary widely across the country.
Benefit period? Some policies will pay for your long-term care for the rest of your life, though for a princely premium.
Since the average stay in a nursing home is 2-1/2 years, most financial planners suggest coverage that pays benefits for at least three years.
But you may want a longer benefit period if your main concern is protecting against Alzheimer’s disease, Crooms adds.
Waiting period? That’s the number of days you must receive care before you can draw benefits.
The longer you wait, the lower your premium will be – although the higher your out-of-pocket expenses will be. Luker recommends 30 days. Financial planners say a policy should allow for at least 5 percent inflation, compounded annually. A $100 daily benefit that increases 5 percent a year will provide $208 in 15 years.
Also, buy a policy that’s “tax-qualified,” Smith-Daley said. Your benefits won’t be taxed, and you’ll be able to take a tax deduction for part of your premiums, assuming your medical expenses are large enough.
What’s the cost?
Your premium will depend on your age and your benefits.
The Texas Department of Insurance’s sample rate guide shows that a 50-year-old would pay $512 a year for a policy that provides $100 a day for up to five years in a nursing home and $50 a day for home health care, after a 30- to 60-day waiting period. A 65-year-old would pay $1,244 for the same coverage.
If your premium increases over the life of your policy, it will be for a whole class of policyholders – a company can’t single you out for an increase because your health has slipped.
Be sure you can afford your premium and still have a cushion for unexpected expenses, Crooms said.
“The last thing you want is to discover in several years that you can’t pay for your coverage and must drop it,” he said.
How do you buy it?
More than 5,000 employers offer long-term care insurance, according to the American Association of Health Plans. The group coverage probably will have a lower premium than an individual policy.
But even if your employer provides such an option, look at other plans and compare, Luker said.
“Seek out a trusted agent, especially one who specializes in long-term care insurance, to guide you through the maze of choices,” she said.
A long-term care insurance policy is only as good as the company standing behind it.
If you do buy a policy, insurance companies must give you at least 30 days to look over it.
“Be sure it reflects what you think you bought,” Smith-Daley said. “If you decide to return the policy during this “free look’ period, your premium will be refunded.”
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RESOURCES
These organizations and agencies provide handbooks on long-term care insurance, available on either their Web sites or, by request, through the mail:
American Association of Health Plans:
www.ahip.org or 202-778-3200
MetLife Mature Market Institute:
www.maturemarketinstitute.com or 203-221-6580
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