Five Things to Know About Long Term Care Insurance
Long term care insurance is the financial elephant in the room for many Americans. The costs of paying for a nursing home or assisted living seem overwhelming, but, then again, so does the prospect of applying for long term care insurance. If you’re in the planning phase, here are a few things that you should know when considering how you will pay for your long term care needs:
1. Medicare won’t cover much. Most people think that just because they have Medicare, their skilled nursing or assisted living expenses will be covered. That is untrue. Medicare covers very limited portions of long term care expenses. Most seniors rely on private funds, long term care insurance, Medicaid, or family assistance when paying for these services.
2. You need to buy early for the premiums to be affordable. Insurers look at potential policy holders as a risk. If your risk of needing long term care is low, then your premiums are usually priced relatively low. If your risk is higher, then you’ll pay more. As you age, long term care insurance gets more expense because the insurance companies view you as being higher risk. So, if you want to pay less in monthly premiums, you’ll want to think ahead and purchase long term care insurance while you’re in your 50’s or 60’s, if not earlier.
3. If you’re not healthy, you probably won’t qualify. Even if you are ahead of the curve when it comes to buying insurance, your health is another limiting factor in the decision. The whole premise of long term care insurance rests on the notion that you are healthy enough that insurers don’t expect to pay out on the policy for a long, long time. If you’ve got a chronic condition like diabetes or heart disease, then insurers will often view you as a risk that they would prefer not to take.
4. The insurance is only as good as the company. Unfortunately, the long term care industry has not figured out the best strategy for pricing its product. On the one hand, companies want to keep premiums low so that seniors can afford them. On the other hand, they have more of their clients living longer and needing more care. In fact, as more seniors need care, long term care insurance becomes less like insurance and more like prepayment. In other words, it used to be more rare for seniors to live long enough to need long term care. So, insurers could charge less, since they might only pay claims to a quarter of their members. Now that almost everybody is living longer, the price of this care is rising, and insurers are feeling the pinch. Companies that didn’t raise their rates fast enough have either gone out of business or quit selling policies. So, make sure that you buy long term care insurance from a reputable company that has a good financial track record.
5. Your premiums will probably increase over time. Since the industry has been struggling with pricing of premiums for the last several years, you should expect to see annual increases of 3-5% a year, if not higher. Read your contract thoroughly to check for language related to fee increases and note how often and by how much insurers can raise rates. While 4% a year doesn’t sound like much, over 20 years, it can more than double your premiums.
Long term care insurance can be a great solution to saving for old age expense. However, some seniors choose to take a different route and self-insure. In other words, they save additional money each month in order to be able to afford care later in life. This can be a viable strategy, but you’ll want to meet with your financial advisor to get help with estimating the total amount you’ll be saving.
Virginia Traweek owns SeniorHousingMove.com, a website dedicated to helping seniors, their families and their advisors make the best decision regarding CCRCs. She has written several books for seniors, including: Continuing Care Retirement Communities: An Insider Tells All, The Financial & Estate Planner’s Guide to Retirement Communities, and UnSCAMable: How Seniors can Protect Themselves on the Internet.