What You Don’t Know About Long-Term Care Insurance Can Cost You
One day you can read the newspaper just fine. The next day your arms aren’t long enough to bring those swimming letters into focus. Pretty soon, you’re stashing drugstore readers in every room of the house. If your family keeps asking you to turn the volume down on the TV, and those little aches have turned into permanent pains, you need to face facts: you’re getting older. Diminished eyesight and hearing are the least of your worries. We Americans are living longer and longer. The Centers for Disease Control and Prevention put the average life expectancy at 78.7 years, and they aren’t necessarily enjoyed in the best of health. Increases in life expectancy are paralleled by an increased need for long-term care insurance (aka nursing homes). Experts estimate that by 2020, 12 million Americans will need long-term care insurance. Ten percent of those will be in a facility five years or longer, at a median annual rate of $73,000! That will chew into your IRA quickly. Fortunately, there’s an insurance policy for that, and the sooner you get serious about shopping for long-term care insurance, the better. Here’s what you need to know.
The Government Doesn’t Cover This
If you’re counting on Medicare to cover this, you need to recalculate. It generally does not, although Part A may cover some costs for the first 100 days after you’ve been released from hospitalization for an acute illness or injury, and it never covers a private room. Medicaid does provide some assistance for low-income Americans, but this is going to vary widely from state to state. And there’s no guarantee that these programs won’t be the victims of budget cuts in the future. The Veterans Affairs (VA) has some provisions for veteran care, but it’s based on availability. ObamaCare can’t help you, either. Early on, the Affordable Care Act had a provision called CLASS (another cute government acronym for Community Living Assistance Services and Supports). It would have entitled folks with chronic illnesses to long-term care coverage. It got scrapped fast when the Obama administration discovered that it was too costly and would not work because not enough healthy people were willing to pay the high premiums that would have subsidized poor, unhealthy people.
Face Facts. Fast.
If you’re in your 40s, like most people you aren’t giving a lot of thought to planning for assisted care in your old age. Heck, you’re doing good just to put a few bucks in the 401K. But, the sooner you get serious about reality and probability, the better your chances of finding an affordable policy. Yes, you’ll be paying for it longer, but you may be able to lock in a lower premium, particularly if you pony up for an inflation rider.
In addition to your age when you secure a policy, other factors affecting cost include:
- Deductible – most policies have a 90-day period, meaning your policy benefits don’t kick in until you’ve been in long-term care for three months. Your premium will go up or down depending on whether you opt for a longer or shorter deductible period.
- Daily benefit – benefits usually fall in the $100 to $200 range. Here again, the more you want, the higher your premium.
- Maximum benefit – this is usually expressed as a number of years versus a dollar amount, and the more years of long-term care coverage you want, the more your policy will cost. Some providers offer lifetime policies, which are obviously going to be the most expensive.
Keep in mind, that to qualify for any benefits, you must be unable to perform two basic functions of daily living such as bathing, cooking, managing your meds and using the bathroom unassisted.
Oh, and if you’re thinking you’ll just wait until you need it to buy long-term care insurance, the usual age cap to purchase a policy is 85. Most experts recommend that you start shopping in your 40s (you can get competitive quotes here) and own by age 50.
Choose with Care
Long-term care insurance policies do not accrue cash value like whole life policies do. Stop paying the premiums and you lose whatever you’ve invested. That said; pick your policy with care.
- Always read the fine print before you buy
- Compare policies from at least three different providers
- Check the company’s financial viability at an independent rater like AM Best
- Review the provider’s history for rate stability
- Consider an inflation-protected policy so that your coverage will be adequate when you need it years from now
- Find out if the policy you want allows you to deduct it from your taxes as an itemized medical expense
Finally, remain on really good terms with your kids, especially if you decide to forego a long-term care insurance policy.