Pursuing Peace of Mind: Pros and Cons of Long-Term Care Insurance
By: Barbara Basler Source: AARP Bulletin Today Date Posted: 2006-12
Boomers who have helped a frail or sick parent search for a nursing home or hire a home care aide are learning hard lessons early: Long-term care is expensive—it can cost tens of thousands of dollars a year—and only those who are virtually impoverished qualify for government aid.
Those lessons are pointing a growing number of boomers toward long-term care insurance, an intriguing idea designed for this brave new world where many more Americans will live until they need help just to get up and dressed in the morning.
About 7 million people now have these policies. First sold as nursing home insurance in the 1970s, and purchased mainly by people in their 70s, long-term care policies today can cover a range of services, including extended care at home or in an adult day care center as well as in an assisted living residence or nursing facility. Some even cover home modifications. Benefits are usually triggered when a person cannot perform at least two key daily activities, such as bathing or dressing, or is cognitively impaired by Alzheimer's or another form of dementia.
This insurance can protect assets, help guarantee care and soothe anxieties. And recent surveys show boomers are buying it so they can control how they're cared for later in life, when they are at their most vulnerable.
The policies, however, are not for everyone. Many people simply cannot afford the kind of coverage they need to make a policy worthwhile.
The best long-term care policy has a reasonable deductible, covers a wide range of care options, guarantees a sufficient financial benefit and is buttressed by inflation protection. This kind of security doesn't come cheap: It could cost a 55-year-old $3,000 a year and a 65-year-old more than $5,000. (By way of full disclosure, AARP makes available long-term care policies underwritten by the Metropolitan Life Insurance Co.)
Long-term care insurance makes sense for those who earn good salaries, have accumulated assets they want to protect and have planned for a comfortable retirement. TheStreet.com Ratings says households with annual income of at least $50,000 to $75,000 and assets of $150,000—not including a car or house—might want to consider a policy. Financial planners typically recommend it for their clients, who tend to earn more.
Many experts say flatly that those who can't afford a good policy shouldn't buy one at all. The worst approach, they say, is to start with a solid, comprehensive policy and whittle it down to something affordable, tossing out expensive but critical provisions such as inflation protection.
Moreover, even those people who can afford a good policy while they're still working may not be able to pay the premiums in the future.
"When you think about these policies, focus on how affordable that premium will be when you're living on a fixed income," advises Robert Friedland of Georgetown University's Center on an Aging Society. "If you don't have a good retirement package, if you haven't been actively saving for retirement, then long-term care insurance is the least of your problems."
Long-term care insurance is complicated. Policies are extremely difficult to compare, so even savvy consumers should seek advice from a financial planner or trained insurance agent.
"For us, buying long-term care insurance was all about peace of mind," says Arnie Kimmel of Chicago. Kimmel, vice president of a private hospital company, and his wife, Laura, an events planner, bought policies four years ago when they were in their mid-50s.
Even though Kimmel deals with insurance issues in his work, he says he "can't imagine trying to buy a policy like this on our own. We relied on our financial adviser to sort out the best combinations for our policy."
Recently the profile of who buys long-term care insurance has changed dramatically—from people in their 70s to those like the Kimmels, in their 50s and early 60s. "Today, two-thirds of all purchasers are still working," says Marc Cohen, president of LifePlans Inc., a Boston consulting and research company that gathers facts and figures for the insurance industry.
The trend could continue. More employers are offering policies, and some politicans are now pushing this kind of private insurance as a way to encourage people to secure their own future.
Congress recently passed legislation allowing states to set up "partnership programs" that permit residents who buy long-term care insurance to protect a portion of their assets if the benefits run out and they eventually qualify for Medicaid.
Twenty years ago, assisted living residences and adult day care centers didn't exist—and more changes are expected in the next 20 years. New technologies and fresh, innovative public policies could offer more options to all Americans.
"The economist Herbert Stein once said, 'If something cannot go on forever, it will stop,' " says Mark Merlis, a health care consultant and the author of a study on long-term care insurance for the Henry J. Kaiser Foundation. "I think we could see some profound changes coming in the next 20 or 30 years."
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