What You Need to Know
By: Barbara Basler; Source: AARP Bulletin Date Posted: 2006-12-01 10:53:00-05:00
1. The best policies are flexible, allowing you to use your benefits for a range of services, from home care aides to care in a nursing facility. Only about 4 percent of the current population over age 65 lives in a nursing home. The average stay there is 2.5 years.
2. Long-term care policies offer a maximum daily payment for a fixed period of time. Most people opt for one to six years. Some experts say three years is adequate. Those with a family history of Alzheimer's or dementia may want to consider lifetime coverage if they can afford it.
3. Some plans offer spousal and healthy living discounts.
4. Don't use a national cost average to determine the coverage you need—check the cost of care in the area where you expect to retire. Costs can vary wildly. A private room in a nursing home costs $111 a day in Shreveport, La., $346 in New York and $578 in Anchorage, Alaska.
5. If you're under age 70, get a policy with automatic compound inflation protection. This protection will double the cost but is essential for younger purchasers, experts say. Without it, your daily benefit could be worth a fraction of its original value in 20 or 30 years.
6. Consider a policy with a "pool of money." This feature provides flexibility and allows you to choose how you'll spend your insurance money—from home care to nursing home care—and extends your coverage if you haven't used all your benefits during the specified period. For instance, if you sign up for a maximum benefit of $100 a day for three years (a total pool of about $100,000) and only draw $50,000 worth of benefits during those three years, you can continue to draw from the remaining pool of money. A policy with this feature costs up to 40 percent more.
7. Most policies sold today qualify for a tax deduction, but the deduction is limited to a portion of the premium and can only be taken by people who have spent more than 7.5 percent of their income on medical expenses during the year.
8. A typical policy has an "elimination period"—the amount of time you pay for your care before insurance takes over. The shorter the period—30, 60 or 90 days—the more expensive the policy. But don't try to reduce premiums by opting for too lengthy an elimination period. You could wind up broke. Paying for nursing home care today during a 180-day elimination period would cost you about $37,000. In 25 years, if the cost of care continues to rise by about 5 percent a year, you'd pay $125,000 during that period.
9. Long-term care insurers guarantee not to raise your premiums because of changes in your health. But they can exercise a blanket rate increase for a whole class of policyholders—say, everyone over age 75—and they have.
10. Read the actual policy outline provided by the insurer to check what coverage you’re buying. Don't rely on a sales brochure or a salesman's promises.
11. Tell the truth about your medical history. If you don't, the company can deny you coverage years later when you try to claim your benefits.
12. Buy long-term care insurance from a solid company that is likely to be around in 20 or
30 years. In the field of long-term care insurance, the major players include John Hancock, MetLife, Prudential, MassMutual and New York Life. For a small fee you can check ratings with financial firms like TheStreet.com Ratings (1-800-289-9222), A.M. Best (908-439-2200) and Moody's Investors Service (212-553-1658).
How Much Does Insurance Cost?
That depends on the options you choose. The premiums below include options many experts recommend: three-year benefit duration, 5 percent compound inflation protection and benefits that kick in after a 60-day waiting period.
| Age at Purchase | $100/day benefit. You pay annually: | $150/day benefit. You pay annually: | $200/day benefit. You pay annually: |
| 50 | $1,821 | $2,732 | $3,634 |
| 55 | $1,971 | $2,957 | $3,943 |
| 60 | $2,438 | $3,657 | $4,876 |
| 65 | $3,258 | $4,887 | $6,516 |
| 70 | $4,866 | $7,299 | $9,732 |
Additional Related Links
Average Daily Cost by Nursing Home Care by State
Big Premium Hikes Jolts Owners of Long-Term Care Insurance
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