You might not need long term care insurance, despite the hoopla you’ve been reading over the last 20 years.
What is long term care insurance?
Basically, it’s a type of health insurance that pays for skilled, intermediate, and custodial care in your own home, adult daycare setting, assisted-living facility, or nursing home.
People who buy this insurance want to protect themselves financially in case they become unable to care for themselves because of a chronic illness, disability, or cognitive impairment, such as Alzheimer’s disease.
Most people buy long term care for a combination of reasons:
- They don’t want to burden their children.
- They want to stay in their own home in case they get sick.
- They want to make sure they have the care should they need it.
Who needs long term care coverage?
According to the Insurance industry, just about everyone.
“Research by Conning & Company shows that 60% of people who reach age 65 will require long term care at some time in their lives. If we extend the Conning & Company stat a bit to include the odds that either person in a couple or spousal situation will need long term care the odds increase dramatically. One widely respected publication, Wall Street Journal, states “… a couple turning 65 has a 75% chance that one of them will need long term care.” This high risk can also affect the entire family where the children are at risk of a negative inheritance, also according to the Wall Street Journal.”
Wow. That’s frightening. (You don’t think the insurance industry is trying to scare us by design do you?)
Before you put your insurance agent on speed-dial, there’s more you need to know. While you may need long term care services some time in your life, you may not need those services for all that long.
In fact, according to Elderweb.com, close to 80% of the people who go in to a long term care facility, are discharged in less than a year. That means you may be able to self-insure because your total cost may be much less than you think.
If we assume that the average cost is about $200 a day for facility care, and you stay for a year, that adds up to $73,000. That’s not chicken feed, but it’s not a fortune either.
Want more bad news, Mr. Long Term Care Salesperson? Even the U.S. Department of Health and Human Services says 47% of us go home or go under within a year.
There seems to be some discrepancy between Eldercare.com and the Department of Health but I think it’s safe to conclude that you have a 50% to 80% of needing long term care for less than a year – if you need it at all.
Even if you do buy it, it won’t solve what is likely your greatest concern – the desire to stay in your own home. Why? Because the policy won’t pay enough to sustain you there.
Here’s what I mean. Let’s say you buy a policy that pays $200 a day in benefits which is typical. The $200 a day might be enough to pay for facility care. But that same $200 a day won’t go nearly as far when you spend it on home care. Depending on what your health needs are, the cost of keeping you home may far exceed $200 a day. That being the case, you’ll end up in a long term care facility anyway.
Those are just a few of the problems with this coverage.
Other things to think about include:
- Will the company who sells you this policy be around to pay when you have a claim? In case you haven’t heard the news, insurance companies actually can go out of business.
- You may never have a claim that pays you more than you paid the company. At least half the people who need care, need it for less than a year.
- You may not qualify for benefits. All policies have restrictions. Make sure you understand what they are. Some companies go so far as to make you go before their own doctors for review before they approve a claim. Avoid those types of policies like the swine flu.
What to look for with long term care insurance
Am I saying you don’t need this coverage? I am not. For some people, having this kind of insurance is a life saver. If you decide you want to have this coverage, here’s what to look for:
1. Find a strong insurer. You are buying a policy now but you may only use it in 20 to 30 years. You can check online ratings from A.M. Best, Moody’s, Standard & Poor’s, or Weiss. The first three services are free; Weiss charges $7.95 for each company rating online and $15 by phone.
2. Don’t buy too soon. Although salespeople will try to get you to buy a policy as young as 40, you may not need it until you reach age 80. By then, new systems may develop making your policy obsolete. Want an example? 15 years ago, long-term-care insurance did not pay for care in assisted-living facilities – now it’s a standard. I suggest you start thinking about it at age 60 and buy the policy at age 65 – if at all.
3. Buy a flexible policy. To qualify for benefits, you’ll have to be unable to perform a certain number of “activities of daily living.” Make sure your policy calls for no more than two such activities and make sure one is bathing. According to the U.S. Department of Health and Human Services 1999 National Nursing Home Survey, 94 percent of nursing-home residents receive help with bathing.
A good policy will cover care not only in nursing homes but also in assisted- living facilities. A home-care benefit should include adult day care, hospice services, and respite care (temporary overnight care).
4. Cover future costs. Buy inflation protection. Remember, you may not tap in to this policy for decades and long term care costs and other insurance rates are increasing quickly. Most policies allow for a 5% annual compounded inflation rider. Buy it.
5. A four-year benefit should be enough. Nearly 90 percent of all people over age 65 who enter a nursing home stay fewer than five years. The average is 2 1/2 years.
Long-term-care insurance is risky and expensive. Your long term care insurance rates could go up and you may have to drop the coverage, losing everything you paid in. Many policies have clauses that can keep you from collecting. And there’s no guarantee that long-term-care insurers will be around 20, 30, or 40 years from now when you need them to pay.
Long-term-care insurance may be a lousy deal, but right now it’s just about the only deal. Have you had any good or bad experiences with long term care insurance? Did the companies pay out or was it like pulling teeth? Would you recommend it to others?