Long-Term Care Insurance

Money magazine (Sept. 2004; pgs. 112-120) has an article discussing long-term care insurance and who should get it. This article points out the costs of the insurance, and when it should be bought.

Annual long-term care premiums start at $500 for 40 year-olds, and $1,300 for 65 year-olds. These policies are generally not used until age 82. These policies are so expensive, and the premiums rise so quickly, that one third of policy holders let the insurance lapse. A Kaiser Family Foundation study found that only 20% of couples between ages 35 and 59 can afford long-term care insurance without risking retirement funding, and more urgent insurances such as life and disability insurance.

According to AARP research, people over the age of 65 have a near 70% chance of needing assistance due to a disability. This statistic includes minor and short-term care the the policies won't cover. A New England Journal of Medicine article concluded that 23% of those who were then 65 would spend a year or more in a nursing home, and 9% would spend five or more years.

Before you buy a long-term care insurance you should examine your finances. Planners say that if your assets at retirement are between $200,000 and $1.5 million you are a candidate for long-term care insurance. If you have less, you can't afford the coverage. If you have more than $1.5 million you may not need it. You could probably afford the care yourself, if it is ever necessary. You are also a candidate if you want to protect your estate, or have a medical history that puts you at higher risk for nursing home care.

Another important decision to take into consideration is when to get coverage. Many planners argue that around 60 years old is a good time to purchase coverage. Premiums rise with age, but don't spike until age 65. The fear of uninsurability isn't necessarily a reason to buy young. According to Kaiser, nearly 80% of people from ages 60-65 pass underwriting screens.

There are other reasons to wait until you are nearing retirement. When you are 40 years old, it is difficult to figure out what your retirement income will be, what care options will exist, and what policies will be available.

Several things to keep in mind when buying long-term care insurance are:

• Insurer: Will the insurer be around when you need the coverage?
• Benefit Period: Only 9% of people need care for more than 2.5 years.
• Elimination Period: How long until you qualify for coverage?
• Daily Benefits: Find out how much care is in your area, then add 5% annual price increases.
• Inflation Protection: This is a very important feature to have.