Updated: 11/12/2010 9:00 AM ET|
Long-term care you can afford
Worried you may need helping hands in your twilight years? Look to long-term-care insurance to make it affordable. And planning and flexibility can hold down premiums.
If you're thinking about buying long-term-care insurance, here's one more reason to do it: Long-term-care costs continue to escalate. In 2009, the average annual cost of a private room in a nursing home rose 3%, to nearly $80,000. Luckily, many employers are now offering long-term-care insurance as an employee benefit, and the deals tend to be better than they were even a few years ago.
Previously, group long-term-care policies asked few, if any, questions about an applicant's health. That made group plans a good choice for people with pre-existing conditions, but not so great for healthy people. Now, group policies look a lot more like individual long-term-care insurance -- but at a better price.
Bob Marzolf, a Forest Lake, Minn., high school agriculture teacher in his 60s was discouraged when he shopped for a policy in 2007 because a previous spinal operation triggered high premiums. When the Forest Lake school system began offering long-term-care coverage in 2009, he decided to try again. This time, the price was lower, even though Marzolf was two years older. Thanks to a 5% group discount, Marzolf found a policy that will pay $4,800 a month (about $160 a day) in long-term-care costs for up to three years for about $2,400 a year in premiums.
Both inside and outside group plans, insurers are rolling out policies that hold down premiums by shifting some of the cost of future care to policyholders.
"There is tremendous interest in looking at more-economical ways to insure for long-term events," says Beth Ludden of Genworth Financial. Some companies have introduced forms of inflation protection that can slash premiums. Others are offering new strategies to help customers hedge their bets in choosing the appropriate length of coverage.
But there is a downside: Although many of these policies will save you money, they may also squeeze your benefits. You need to know the limitations before you decide whether one of them is right for you.
Keeping up with inflation
Because you may wait 20 years or more to tap your long-term-care policy, it's essential that the amount of your daily benefit keeps up with rising costs. John Hancock insurance's Leading Edge policy -- the type that Marzolf purchased -- adjusts the daily benefit each year based on changes in the Consumer Price Index. That's why his policy costs up to 40% less than the company's standard policy, which uses a 5% compound-inflation factor.
A CPI-linked policy can be risky, though. In years of high inflation you may come out ahead. In low-inflation years, however -- such as 2009 and 2010 -- the cost of care may escalate, but your benefit may not (although it cannot shrink).
Insurers also have been slashing costs by offering guaranteed purchase option coverage. These policies do not automatically adjust for inflation, but you may boost your coverage every few years, regardless of your health. You will pay higher premiums for the extra benefits based on how old you are when you buy them.
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