Shopping for Long-Term Care
Insurance - Tough Money Decision for Seniors
Many seniors don't realize long-term care is not a
regular service of Medicare
By Steve Tripoli, NPR News,
NPRs Shots blog.
May 29, 2014 - One of the toughest
money decisions Americans face as they age is whether to buy long-term
care insurance. Many people don't realize that Medicare usually doesn't
cover long-term care, yet lengthy assisted-living or nursing home stays
can decimate even the best-laid retirement plan.
Long-term care insurance is a
complex product that requires a long-term commitment if you're buying
it. So how can you tell if this insurance is right for you?
Suzanne and Bob O'Donnell of
Marshfield, Mass., were in their mid-50s when a financial adviser
convinced them long-term care insurance made sense as did buying it
before they got old.
"And [that] has turned out to be
true," Bob says, "because later on, a lot of our friends have tried to
buy it and either been rejected or their premiums are prohibitive."
So that's the first lesson:
Shopping before health problems set in improves your chances of being
accepted while tempering the cost of each month's premium.
The O'Donnells, now retired,
covered the three main bases for a worthwhile policy when they bought it
13 years ago: a good-size monthly benefit, inflation protection and
ample years of coverage. Suzanne says they also covered more personal
"We just wanted to not be a burden
to our children," she says, "and we also wanted to be more secure in
where we'd be able to end up."
Want to know how much long-term
care costs in your state? Estimate projected long-term care costs and
compare costs across locations here.
She'd seen her grandmother spend
years in a nursing home that Suzanne didn't like.
Their policy is expensive: The
premium recently rose to $440 a month. That's partly because they bought
a 5 percent inflation rider that, in just a dozen years, has raised
their initial $6,000 monthly benefit to more than $11,000. That's about
what a nursing home in the Northeast costs these days.
Scott Bunker, an insurance broker
in the Boston area, says the O'Donnells aren't typical in seeking the
insurance before they need it. He sees a lot of people who look into
buying a policy in their 50s and early 60s then hesitate.
"They explore it, they look at it,
they think, 'Geez this makes an awful lot of sense, but it's so long
between now and when I expect that I'm going to need it.' And so they'll
put it off for a little while," he says. "And then, a year or two goes
by and you'll get a phone call and people will say, 'OK, we're ready to
Bunker says that's often because
they've seen that a family member is starting to need care.
Playing The Odds
As with any insurance, you're
playing the odds that you'll need it. Tony Webb at Boston College's
Center for Retirement Research has been studying the care needs of
"And we find that men aged 65 have
a 44 percent chance of ever going into care, and women aged 65 have a 58
percent chance of ever going into care," Webb says.
Those odds are for all types of
care from expensive nursing homes to assisted living in your own home
or a facility. A good insurance policy covers all three places.
Most people average less than a
year in care. The risk is that it can go much longer. Another risk is
that policy buyers won't realize they're taking on a long-term
"If you're taking out a policy in
your 50s, the claim may be made in 30 years' time, and therefore you
have to be confident of being able and willing to pay the premiums for a
very long period of time," Webb says.
If you stop paying, you'll lose
your whole investment.
How much coverage should you
purchase? Broker Scott Bunker says there are
two ways to frame that question.
"When I talk to folks, I talk in
terms of a full-insurance strategy or a co-insurance strategy," he says.
"Full-insurance would be [about] $10,000 or $11,000 a month."
Co-insurance, he says, would be a policy that paid out something more
like $7,000 per month; in that case, the holder of the policy would be
expected to come up with another $3,000 to $4,000 out of pocket each
month for care.
So who needs this insurance?
In short, people who are between rich and poor, who want or need to
protect assets for a spouse or for heirs.
If you're wealthy, you can bypass
insurance and count on being able to pay for care yourself. If you have
few assets, you can risk going without insurance and watching those
assets melt away before Medicaid kicks in.
Heading into retirement, the
O'Donnells think they got a good deal with their policy even though the
years of premium payments add up.
"We've had it for 13 years, and in
13 years, we've spent about $63,000 which, as I understand it,
wouldn't be one year of good, quality care," Suzanne says.
And Bob says buying while still in
their 50s got them more coverage than if they'd waited.
"I think we were lucky better
than wise," he says. "I think because we did it earlier, the amount of
money we were going to spend afforded us a lot more bells and whistles
than if we had waited longer to do it."
One last caution if you're
shopping for this coverage: Be sure that
ratings agencies say the insurer you're dealing with has a very strong
long-term financial position. You're entering what could be,
essentially, a 30-plus-year marriage with this company, so you want to
be sure your insurance partner is there for you in sickness not just
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