Money Matters

Should you purchase long-term care insurance?

February 23, 2013 

Q. My husband and I are trying to decide whether we should purchase long-term-care insurance. Won’t our Medicare and Medicare Supplement help with these costs? Any guidance you can provide would be appreciated.

That is a difficult decision for many reasons. Medical insurance and Medicare will pay for some long-term care needs, but they provide very limited coverage. The benefits are limited to rehabilitation and recovery at qualified skilled nursing facilities immediately after at least a three-day stay in the hospital. Medicare does not cover custodial care at all. This is described as help with daily living activities such as bathing, dressing, eating, getting in and out of bed, moving around and using the bathroom. Most supplemental plans offer very little, if any, coverage for custodial care services. Long-term care insurance is designed to cover the cost of these services whether in-home or in an assisted living or nursing home facility. At $33,000 to $123,000 a year for long-term care services, plus everyday expenses, most people’s retirement savings and investment plans would be quickly drained without this insurance. The average annual cost in Raleigh is more than over $62,000.

A long-term care insurance policy can help safeguard your assets and increase your independence and control. As with most insurance, you have to assess your odds of needing the coverage and weigh this against the cost of the coverage. A 1991 study published in The New England Journal of Medicine reports that two out of three people who turned 65 in 1990 either will never spend any time in a nursing home or will spend less than three months in one. The chances of needing home health care are substantially greater than needing nursing-home care. The reported 2010 statistics from the U.S. Department of Health and Human Services estimate that about 70 percent of people older than 65 will require some form of long-term care at some point. You need to go beyond that scary statistic to weigh your odds when making your decision to buy LTCI. Forty percent of the elderly (older than 65) will enter nursing homes, but only 10 percent will stay for five years or more.

Costs are rising, and more companies are getting out of the LTCI business because they see the potential future costs as too much of a liability compared to the premiums charged. You must investigate the financial strength of the insurance company; make sure it’s highly rated and has adequate reserves to meet future liabilities. Insurers continuing to offer and support this product are making other changes that may affect future policies. Some of these changes are eliminating discounts when a married couple applies at the same time, raising premiums based on gender, which will increase premiums for women, and examining medical records more closely.

If you decide you want the protection, consider how much income you will have and what your expenses are likely to be in retirement. Don’t buy something now that you won’t be able to afford as you get older. I suggest you start evaluating policies in your late 50s or early 60s. Long-term care insurance is less expensive the younger and healthier you are. You don’t want to buy too early, though, since the longer you own the policy, the longer you pay premiums. Companies are also raising premiums for existing policy holders as the cost of providing LTC benefits increases. The more “bells and whistles” on your policy, the higher the premiums. The benefit selections are almost endless, but you need to evaluate your own situation and determine the amount of coverage and cost with which you are comfortable. The most flexible type of LTCI policy offers benefits for care in your own home, a nursing facility or an assisted living facility (an integrated policy).

Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at askholly.com or P.O. Box 97128, Raleigh, NC 27624

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