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The
Family Long-Term Care Insurance Decision
Despite the recent economic downturn, more and more people
of all ages are buying long-term care insurance policies. You, too, may be
wondering if long-term care insurance is the smartest decision for you and your
family. In this article, a long-term care industry specialist explains the key
factors in making the long-term care insurance decision.
Despite the economic downturn in the U.S. over the past few
years, public interest in long-term care insurance is quietly and steadily
growing. In fact, more than four million people held individual long-term care
insurance policies at the end of December 2003.1
The recent interest in long-term care insurance is
likely due to three factors: the evolution of these insurance products, limited
alternatives for financing care and growing consumer awareness of the benefits
of long-term care insurance.
Product evolution
Long-term care (LTC) insurance policies have evolved over
time to be far more flexible than they were in the early days, when they were
known as nursing home policies. Today, most policies allow the insured to
receive care in the setting of their choice, whether this is at home, in an
assisted living facility, adult day care center or nursing home.
Industry standards have developed as well. Most policies
offer benefits when a person can no longer perform two out of six activities
of daily living (such as bathing, dressing, toileting or eating), or when
they need substantial assistance due to a cognitive impairment. New benefits
have come on the scene, such as additional cash allowances on top of basic
coverage which pay for extras, like home modifications and home safety checks.
Benefits like this make it easier for people to receive assistance at home.
Limited alternatives
Almost every day we read that the public safety net is
slowly disappearing and the Social Security system may be in jeopardy 20 years
from now. Even today, publicly-available options for managing long-term care
expenses are severely limited.
For example, Medicare typically covers only certain types
of care for a limited period of time, leaving many long-term care costs
uncovered. Medicaid also is an imperfect solution because it requires people to
spend down their assets to state required levels to qualify. In addition,
Medicaid primarily pays for care received in a nursing facility, not at home.
Perhaps this explains why even the Government recently decided to offer its
employees the option to buy long-term care insurance through a special Federal
Long-Term Care Insurance Program.
Consumer awareness
In part, LTC insurance sales have been driven by a growing
consumer awareness of the benefits of long-term care insurance coverage. With
more than 25 million adult caregivers in the U.S. today, many people are
experiencing long-term care within their own families.2 Some have
witnessed the positive effects of long-term care insurance, which may have
allowed their loved ones to remain in their own homes by paying for in-home
care.
But many families without long-term care insurance coverage
in place have seen the opposite effect: that is, limited choices and the impact
of the high costs of long-term care on their family 's financial foundation and
security.
What advisors
recommend
For the majority of the population who cannot afford to self-insure this risk,
many financial planners are recommending LTC
insurance as a core element of a family's financial plan. The advantages of
planning ahead and purchasing the insurance at younger ages (under age 55)
include:
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The younger you buy, the cheaper the premiums.
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Younger buyers are more likely to be in a healthy condition to qualify
for coverage.
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If long-term care is needed at an earlier age, the
family's finances
will be protected as the policy will help to cover the costs of care.
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The coverage can pay for caregivers to come into the home, where most
people prefer to receive care.
This may explain why the average age of a long-term care
insurance buyer has dropped from 72-years old in 1990 to almost 58-years old
today.3
Is it worth it?
Few people regret purchasing car insurance or home insurance policies when an
accident takes place. The value of the coverage is far
greater than the premiums paid, especially when you consider the
alternative: paying for a new car or a new home out-of-pocket. The same is true
of long-term care insurance. The benefits paid out under a long-term care
insurance policy for one year alone often can exceed the cumulative premiums a
client pays into a policy over many years.
For example, if a 55-year-old man purchases a policy that
costs $2,000 per year and pays premiums for 20 years until he needs long-term
care at age 75, he will pay a total of $40,000 in premiums over those 20 years.
Compare this to the cost of care at a skilled nursing facility, which can reach
$58,000 per year and is expected to grow five percent per year.4 In
20 years, the average annual cost of long-term care may be well in excess of
$100,000.
In addition, new policy options available on the market
today allow partners and family members to share the benefits of a single
policy. This gives policies even greater value by making it more likely that the
benefits will be used by one family member or another at some point in time.
Tips for a positive
buying experience
1. Engage in a family discussion and plan ahead
If you are helping your parents, make sure you understand
their future wants and desires.
If you are a couple planning for your own
long-term care needs, think through your own priorities and those of your
children. Long-term care is a family issue.
2. Seek assistance
Long-term care insurance is best understood with the help
of an insurance agent or financial planner who can assess a family's situation
and specific needs. Experienced LTC insurance advisors will help you through the
buying process by explaining the various features of a policy and how they will
benefit you at claim time.
3. Investigate your LTC insurance carrier
When you look at the various LTC insurance carriers,
consider their relative financial strengths and stability, in addition to their
years of experience in the long-term care insurance market. S&P (Standard
and Poor's), Moody's, Fitch and A.M. Best rate most long-term care
insurance carriers.
Sources
1.
2003 LTC Insurance and Medicare
Supplement Sales and In Force Survey,
LIMRA International
2.
The Economic Value of Informal Caregiving, A Arno, P.S., Levine, C.,
and Memmott, M. M. Health Affairs,
Vol. 18, No. 2, 1999.
3.
Long Term Care Insurance in 1998-1999, Health Insurance Association of
America (HIAA), 2002.
4.
Metlife Mature Market Study, 2003.
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