The cost to purchase such a policy can start out substantially lower. A traditional policy with a 5% annual inflation adjustment may cost more than twice as much in the first year as one with a guaranteed option to bump up inflation protection in the future. But the savings may be a false economy: Purchasing additional coverage with a guaranteed option could end up costing more for less coverage in the long run.
If you can afford it, stick with a policy that offers inflation protection based on a 5% annually compounded rate. But if you are looking to hold down costs -- and are willing to shoulder some of the potential future expenses -- consider a CPI-adjusted policy. It's cheaper than the compounded version and may be a safer bet than one with a guaranteed purchase option. However, you may want to buy a higher daily benefit initially to stay ahead of future caregiver cost hikes.
More flexibility with shared benefits
One of the most difficult decisions to make when purchasing a long-term-care policy involves the length of your benefit period. A typical 65-year-old is likely to need some form of long-term care for three years, according to the National Clearinghouse for Long-Term Care Information. A few people, such as those with Alzheimer's disease, may need care for a much longer time. But policies that provide lifetime benefits are expensive, often costing more than $4,000 a year for people in their 50s.
Patrick and Jeanne O'Neill, the owners of Big Sky Bread in Wilmington, Del., discovered an affordable way to hedge their long-term-care bets without spending a lot of dough. After his father died of prostate cancer following three years of care, Patrick didn't want to worry about what would happen if he needed care himself someday. And he was concerned that he or Jeanne would need care for a longer period than the typical three or four years. But the five-year policies they found were unaffordable.
Then their insurance agent, Andre Hoeschel, told them about a shared-benefit policy. The O'Neills bought a three-year shared-benefit policy that gives them a pool of six years of coverage between them. So if Patrick needed care for four years, for example, Jeanne would still have an additional two years' worth of benefits. "You hate to pay for something and not use it," Patrick says. "But the odds are that one of us will need it."
Buying a six-year shared-benefit policy costs about 15% more than buying two separate policies, each with a three-year benefit period. But it was less expensive than the policies with a five-year benefit period the O'Neills were considering.
Another way to share costs
Another money-saving strategy is to insure against only a portion of potential long-term-care costs. "A lot of customers are saying that instead of getting a policy that covers the full risk, let's look at something that will cover most of the costs," Hoeschel says. "They are willing to cover 10% to 40% of the costs themselves."
Some people choose a smaller daily benefit, with the idea of paying for additional expenses on their own. Another option is to buy Genworth's Cornerstone policy. Policyholders agree to share 20% of the costs when benefits are paid; the policy can reduce premiums by about 40% compared with traditional policies.
Note that this type of scaled-back coverage could boost your out-of-pocket costs significantly depending on the type of care you receive. Unlike most long-term-care policies, this cheaper version doesn't cover the room-and-board portion of an assisted-living facility's cost.
Early planning is essential
When it comes to buying long-term-care insurance, 50 is the new 60. Consumers are buying coverage at younger ages to take advantage of lower premiums (although they are paying those premiums longer).
"It is part of protecting your assets and your whole retirement-planning process," Kathleen Bucchianeri says. Bucchianeri and her husband, Richard, who live in Westford, Mass., bought traditional Genworth long-term-care policies in 2009. Their policies provide immediate coverage for home care and permit reimbursement for nonprofessional home-care providers, such as neighbors or church members.
When Richard's dad needed assistance years ago, his policy required that the Bucchianeris hire people through an agency even though Richard's mother found capable independent caregivers.
Long-term-care policies have so many moving parts that it helps to have an expert agent, preferably one who deals with several insurance companies, lead you through the maze. To find one in your area, visit the website of the American Association for Long-Term Care Insurance.
This article was reported by Kimberly Lankford for Kiplinger's Personal Finance magazine.
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