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Long Term Care Insurance

Long-term Care Facts

  1. What is the likelihood I will need long-term care?

For someone turning 65 there is a 70% chance he/she will need some type of long-term care coverage.[1]

  1. If I have long-term care insurance when does it kick in?

When you are unable to perform three of the following tasks:

  • Bathing/showering
  • Dressing
  • Eating
  • Getting out of bed/chairs
  • Walking
  • Using a toilet
  1. What are the different ways to access long-term care?

 

Provider

Service

National Median Rates

Nursing home

licensed facility providing nursing care

$250 per day

Assisted living

apartment within a facility with medical professionals on staff

$3,600 monthly

Home health aide

licensed nurse providing care in your home

$20 hourly

Homemaker services

services which provide “hands-off” care in your home

$20 hourly

 

  1. If I enter a nursing home how long am I likely to stay there?

Males – 11 months[2]

Females – 17 months[3]

 

  1. Do long-term care costs vary by geography?

Yes. Below are the five most expensive states ranked according to the median annual cost of a private room in a nursing home:

 

            Alaska              $281,000

            Connecticut     $159,000

            Massachusetts   $140,000

            New York        $136,000

            Hawaii             $135,000

            Florida             $93,000

            Virginia            $84,000

            Texas               $61,000

            Maryland         $100,000

  1. Do I need to go to a nursing home to get care and if not how is the cost different?

No, many people receive care at home through a paid home health aide. Genworth reports that 63% of its final claims are for people receiving care still in their homes.

Whereas nursing home costs are annually increasing in the 4-6% range, costs for receiving care in your home are increasing only at a 1% annual rate.

Similar to nursing home costs home health care vary across states. Listed below are the five most expensive states for a home health aide working 44 hours per week for 52 weeks.

 

                        North Dakota              $62,000

                        Alaska                          $59,000

                        Minnesota                    $57,000

                        Massachusetts               $57,000

                        Rhode Island               $57,000

                        Florida                         $23,000

                        Texas                           $22,000

  1. What type of insurance should I buy?

Using the data of how people actually access long-term care as a guide it would be best to purchase a scaled-back policy to cover a short stay in a facility or a few hours of home care a day. Many people tend to “overbuy their coverage.” Most people don’t experience the long claim period that is most feared.

Once a policy is decided upon premiums must fit in your budget. For example, you must be comfortable that you can continue the premiums indefinitely or you shouldn’t purchase the policy.

Things to assess when searching for a policy are:

  • Type of risk trying to cover
  • Health status
  • Hereditary conditions
  • Family longevity
  • Availability of family caregivers
  • Personal preferences

If you want to remain at home and have family members who can provide some care you may want to buy a policy with a relatively low benefit level. With the national median rate for a home health aide at $20 per hour, the policy should provide enough to cover the cost of an aide for 2.5 hours a day.

  1. What is the “elimination period?”

The “elimination period” is like the deductible in health insurance e.g., the costs you pay before the insurance kicks in. In long-term care insurance it refers to the period of time before the insurance pays. For example, a 90-day elimination period costs about 40% less than a zero-day period.[4]

  1. How long a benefit period should I choose?

Choosing a shorter benefit period will cut the premium. A benefit period of three years will cover the vast majority of long-term care needs, according to actuarial firm Milliman.

  1. How much does inflation protection cost?

The annual cost of a policy would be reduced 60% by switching to the 3% rather than the 5% inflation protection.[5]

Remember the important point is the risk you are trying to cover. Most people receive long-term care in their homes, therefore, the relevant cost is that for a home healthcare aide rather than a nursing home. As noted annual cost increases for home health aides have been in the 1% range – much lower than the 5-6% range for nursing homes.

  1. Does it matter how old I am when I buy the policy?

Yes.   A 60-year old couple would pay $3,930 for a policy with 3% inflation protection, while a 65-year old couple would pay $6,177 for the same policy.

  1. What is a “shared” policy?

This policy allows couples to share benefits. For example, if a husband and wife have a three year policy and the wife develops dementia and uses up three years of care, she can dip into her husband’s benefits.

  1. Why have premiums increased?

Insurer’s assumptions have been wrong:

  • Fewer people have dropped policies than expected
  • More claims than expected
  • Low interest rates have left insurers with lower investment earnings, which are used to offset losses on the insurance underwriting
  1. What is a hybrid policy and does it make sense?

Policies that combine long-term care insurance with life insurance. You will typically pay a single upfront premium for a cash-value life insurance policy that will pay benefits early if you need long-term care or provide your heirs a death benefit if you don’t need care.

Purchasing a hybrid policy is only logical if you also need life insurance. However, this need could be met, on a more cost effective basis, by purchasing a scaled back long-term care policy and a separate term life insurance policy.

[1] Longtermcare.gov

[2] Center for Retirement Research

[3] Ibid

[4] James Glickman, LifeCare Assurance

[5] Genworth policy for a 55-year old couple