Have You Considered Buying Long-Term Care Insurance?

JUNE 6, 2016 VOLUME 23 NUMBER 21
Spoiler alert: the cost of long-term care can be really high. One of the leading national insurance companies (Genworth USA) conducts an annual survey of the actual costs, breaking them down by state and even by major cities within each state. Genworth’s estimate of the cost of a semi-private nursing home bed in Tucson in 2016: $83,045 per year. (You can look up your own community’s figures on the Genworth website.)

That means a nursing home resident can expect to pay a little more than $225 for each day spent in the nursing home. Would it be much cheaper in an assisted living facility? Yes — about $39,900 per year, or almost $110 per day. That’s still a lot of money, and beyond most families’ ability to pay out of pocket, at least for any extended stay.

Maybe you’re thinking you can save some money by staying at home. Unfortunately, the costs of in-home care are somewhere between those two figures — and that doesn’t cover the costs of home maintenance, utilities, food and other costs incurred when you stay at home. The clear message: if you or someone you love requires long-term care, in Tucson or anywhere else in the United States, the costs will probably be high.

How likely is it that you will spend some time in a long-term care facility? According to the best estimates out there, people turning 50 this year have about a 50% chance of spending some time in long-term care. Actually, women have a significantly higher risk, at about 65%.

At least nursing home stays are usually short. The average length of a nursing home stay (nationwide) is about four months for men, and about seven months for women. That masks the reality, though, that about half of nursing home residents stay more than three years.

Many of our clients are adamant: “I’m not going to a nursing home,” some say. They insist that family will take care of them, or hint darkly that they have other plans in mind. Caring for a family member at home, though, is hard work — and may not be good for the failing family member, whose health care needs may be significant. We often remind family members that they do no favors by caring for a family member while destroying their own health or financial status.

One choice you might consider is long-term care insurance. While sales of such insurance have dropped sharply in recent years, there are about seven million Americans with policies designed to cover the costs of their long-term care. Is such a policy right for you?

You might want to talk with your insurance agent about LTCI (the nearly-ubiquitous name for long-term care insurance). You owe it to yourself to at least look into a policy, and figure out whether you can afford it — and whether you would benefit from having such coverage.

Many of the clients we talk with think they are too young to worry about LTCI. According to the industry, though, the ideal new policy purchaser is in his or her mid-50s. The cost of coverage for a healthy 55-year-old is so much lower that the total cost of insurance will be less when the purchase is made early. For a long time, the average age of new policy purchasers was about 70 — but it has more recently dropped to about 60, as consumers figure out they should be looking at the policies at younger ages.

How much will an LTCI policy cost you? The figures vary widely, based on your age at the time of purchase, where you live, how much of a benefit you purchase, and which company you sign up with. But the American Association for Long-Term Care Insurance (an industry trade group) estimates that the average cost of a new policy for a 55-year-old will be about $2,000/year. That premium figure will buy you about $150/day coverage with a 3% annual automatic inflation adjustment and three years’ worth of coverage. Note that the $150/day benefit will only cover about 2/3 of the total nursing home cost in the Tucson area; that’s not necessarily a bad thing, since you’ll probably have some other income available if you do need to be placed in long-term care.

One piece of good news: there are only a relative handful of companies offering LTCI, so you won’t have to talk with (or research) that many. In fact, there are fewer than one dozen companies writing traditional LTCI policies at a frequency that shows a serious commitment to the product.

You need to remember that, once you buy a policy, premium costs can (and do) go up. Those premium increases, though, are keyed to the entire base of participants — and not to your own health changes, or local cost movement. That has been one of the things that scares consumers off from purchasing LTCI, however.

You might ask your insurance agent about hybrid LTCI/Life Insurance policies. They usually require much bigger premiums but for a short period of time (they might, for instance, require $10,000 payments for each of five or ten years). Once the investment is made, though, you have an LTCI benefit and a life insurance policy, so that your estate will get back your investment (and a small return) even if you do not require long-term care.

The bottom line: don’t just ignore this problem. Look into what you need to do to protect against the high cost of long-term care.

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One Response

  1. Eli Kaminsky

     /  June 8, 2016

    An alternative to long-term insurance is to buy into a senior
    living arrangement. You pay a very substantial amount up front and then continue to pay for “maintenance” costs. In return you may start with an active senior living apartment, then progress to an assisted living residence, and end up in a nursing home, all of which are under the same ownership and management.

    People are attracted to this arrangement because there usually is no health or pre-existing condition requirement and the nursing home stay is, in a way, prepaid.
    An obvious disadvantage is that payment up front will reduce
    the estate for possible heirs, but that depends on the actual family and financial situation.
    The main disadvantage is that one cannot predict how satisfactory the facilities at any level. especially the nursing home, will be in the future. Changes in management, ownership, or possible bankruptcy are all possibilities. Any of these may make it necessary to move out and lose one’s investment.

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