A Safety Net That Might Not Hold
Long-term-care insurance doesn't have many fans, but that may change
Long-term-care insurance isn't cheap: A 65-year-old who buys a three-year policy with a $150 daily benefit can expect to pay a little over $3,000 a year in premiums, according to the American Association of Long-Term Care Insurance, an industry group in Westlake Village, Calif. Someone who buys a policy at age 65 may well pay on it for 20 years before needing to claim benefits, if ever. So it's not just a question of whether you can afford the insurance now but whether you can afford it decades down the road when premiums will most likely have risen, your spouse may have died, and your overall medical costs may be much higher, says Bonnie Burns, a training and policy specialist at California Health Advocates who helped Hoff with her claim. "I always tell people to have a 20 percent cushion when planning for what they'll need," she says.
Despite the uncertainty, long-term-care insurance is appealing to some, especially affluent people who don't want to deplete their estates to cover expensive nursing home bills and people who have family histories of Alzheimer's or other lingering illnesses. If you're considering buying this insurance-whether for yourself or your parent-here are key elements to think about when choosing a policy:
Type of facility. Make sure the plan covers care in any type of facility. You or your parent may not ever want to go into a nursing home. But there may come a time-if you develop Alzheimer's or have a stroke, for example-when it is the best option.
Benefit trigger. Benefits kick in only if the policyholder is cognitively impaired or if he or she needs help with a certain number of ADLs, such as eating, dressing, and bathing. A policy that kicks in with two out of six ADLs is better than one that requires three out of five.
Daily benefit. Find out how much it costs for a nursing home, assisted living, and home healthcare. MetLife Insurance posts daily rates for states at www.maturemarketinstitute.com.
Inflation protection. It can double the cost of a premium but is critical since you're going to be paying for this insurance for years, say experts. Unless you're in your 70s or older, go for the 5 percent compounded option as opposed to a 5 percent simple inflation adjustment, which most likely won't keep pace with rising costs over the long term.
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