Page 18 - HCN Senior Planning Guide August 2020

‘The Unsolved Problem’
Five Things to Know About Long-term-care Insurance By ELLEN STARK for the AARP BULLETIN
By the time you reach 65, chances are about 50/50 that you’ll require paid long-term care (LTC) someday. If you pay out of pocket, you’ll
spend $140,000 on average. Yet you probably haven’t planned for that financial risk. Only 7.2 million or so Americans have LTC insurance, which covers many of the costs of a nursing home, assisted living, or in-home care — expenses that aren’t covered by Medicare.
“Long-term care is the unsolved problem for so many people,” said Christine Benz, director of Personal Finance at Morningstar, an investment research firm in Chicago. Here’s what you need to know about long- term-care insurance today.
1. Traditional policies have fewer fans. For years, long-term-care insurance entailed paying an annual premium in return for financial assistance if you ever needed help with day-to-day activities such as bathing, dressing, and eating meals. Typical terms today include a daily benefit for nursing-home coverage, a waiting period of about three months before insurance kicks in, and a maximum of three years’ worth of coverage.
But these stand-alone LTC policies have had a troubled history of premium spikes and insurer losses, thanks in part to faulty forecasts by insurers of the amount of care they’d be on the hook for. Sales have fallen sharply. While more than 100 insurers sold
policies in the 1990s, now fewer than 15 do. “This is a classic story of market failure,” said Howard Gleckman, a senior fellow at the Urban Institute, a nonpartisan think tank in Washington, and the author of Caring for Our Parents. “No one wants to buy insurance, and no one wants to sell it.”
2. You might not need insurance ... but you need a plan. Premiums for LTC policies average $2,700 a year, according to the industry research firm LifePlans. That puts the coverage out of reach for many Americans. (One bright spot for spouses: discounts for couples
are common — typically 30% off the price of policies bought separately.)
If your assets are few, you may eventually be able
to cover LTC costs via Medicaid, available only if you’re
impoverished; if you have lots of money saved, you likely can pay for future care out of pocket. But weigh factors other than cash: do you have home equity you could tap? Nearby children who can be counted on to pitch in? Or do you have a family history of dementia that puts you at higher risk of needing care?
3. There’s a new insurance in town. As traditional LTC insurance sputters, another policy is taking off: whole life insurance that you can draw from for long- term care. Unlike the older variety of LTC insurance, these ‘hybrid’ policies will return money to your heirs even if you don’t end up needing long-term care.
You don’t run traditional policies’ risk of a rate hike because you lock in your premium up front. If you’re older or have health problems, you may be more likely to qualify.
4. But old-school policies are cheaper. If all you want is cost-effective coverage — even if that means nothing back if you never need help — traditional LTC insurance has the edge. “Hybrid policies are usually two to three times more expensive than traditional insurance for the same long-term care benefits,” said
Long-term
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“This is a classic story of market failure. No one wants to buy insurance, and no one wants to sell it.”
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AUGUST 2020 SENIOR PLANNING GUIDE