With the vast advances in medical research made over the last few decades, seniors are expected to live much longer than their parents did. For millennials, that difference could increase even further. If current projections are any indication, living to 100 could be commonplace for millennials and future generations. Sounds great, right?
When it comes to a long life, be careful what you wish for. Life expectancy is one thing, but quality of life is another issue entirely. For a generation with bad posture, poor diet and less-than-stellar exercise habits, living to 100 could be more of a curse than a blessing.
That’s why even the youngest consumers need to start preparing for the near-inevitability of needing long-term care. For decades, the best way to do that has been taking out a long-term care insurance policy.
But with the insurance landscape changing drastically in recent years, the question becomes—is long-term care insurance really worth it?
What is long-term care insurance?
Long-term care insurance covers the costs associated with long-term stays in assisted living or nursing home facilities. It also pays for in-home nurses and aides who assist with basic daily activities such as eating, bathing and dressing.
Research from the U.S. Department of Health and Human Services reveals that, “While most people with LTSS needs will spend relatively little on their care, about one in six (17 percent) will spend at least $100,000 out-of-pocket for future long-term services and supports.”
The report goes on to say that most people finance half the costs of long-term care themselves, relying on public services and insurance for the rest.
As the current generation of seniors has started to cash in on their long-term care insurance policies, some of the biggest insurance companies have exited the LTC market, including Metlife, Prudential and John Hancock. Providers are now much warier about losing out when it comes to LTC.
“Many of the policies sold over the last 25 years were priced too low for various reasons and are now being claimed at much higher rates than predicted,” said Doug Nordman, author of “The Military Guide to Financial Independence and Retirement.”
Is it worth it?
The annual cost of an LTC policy is between $2,500 and $4,000 for a 65 year-old purchasing a policy today. However, prices vary depending on your age, gender, health, and geographic location. Premiums might be too expensive for seniors who are close to or already retired and living on a fixed income.
“People who have difficulty affording a LTC policy should consider home care and Medicaid,” Nordman said. “There’s no reason to spend years paying excessively high premiums only to reduce your quality of life and end up on Medicaid even more quickly.”
When it comes to the question of whether or not it’s worthwhile to buy a LTC policy, Nordman’s answer is a categorical no. Most policies these days allow for premiums to increase every year – and the difference sometimes be as much as 50-80 percent more.
For example, the federal government has its own LTC insurance plan for its employees, but in 2016 they announced that premiums would increase by an average of 83 percent.
“This has happened twice during the last decade to policy holders of the Federal Long Term Care Insurance Program,” he said.
Rising costs mean that premium prices could outstrip the benefits of insurance, in which case you’d be better off saving the money in a savings or retirement account. Plus, if premiums increase, you have to decide if you want to keep the policy, downgrade to a smaller payout or cancel it altogether.
Where to buy it
If you want to purchase LTC coverage, you’ll want to find a company who can sell you coverage that makes sense. Nordman recommends hiring a fee-only financial planner and insurance broker to find the best LTC policy that fits your needs. An expert can help you decipher the insurance jargon so you’re getting exactly what you’re paying for.
“Good policies will have affordable premiums and minimal opportunities for premium hikes,” he said. “Your state’s insurance legislation will hopefully have strong enforcement.”
Nordman also says to make sure providers have an easy-to-use website and helpful customer service. While you’re incapacitated, a caregiver will have to file claims on your behalf, and it won’t make their life any easier if the insurance company is giving them the runaround.
If you think you want a policy, try to buy it sooner rather than later. The younger you are when you buy the policy, the cheaper it will be. In fact, many seniors 65 and older won’t even qualify due to age.
If you don’t want to pay for LTC insurance and are worried about contracting a disease that will require round-the-clock care, don’t fret—you have options. For example, put your assets in a trust. This won’t be counted against you when it comes to Medicaid.
However, the federal government has enacted strict rules to prevent people from harboring their dollars in a trust while they receive Medicaid, so consult a lawyer if you’re considering this option. In many cases, seniors have to transfer their assets into a trust five years before they wish to claim Medicaid.
Another way to avoid buying this kind of insurance is to self-insure or save enough money in the bank to pay for any long-term care needs. The U.S. Department of Health and Human Services recommends that the average 65 year-old invest $70,000 today in order to save the $138,000 they’ll need for LTC. You might recoil at the idea of setting so much aside for healthcare, but it’s better than relying on Medicaid to kick in later on.
Seniors should also remember that staying healthy with a balanced diet and regular exercise can minimize the threat of injury and disease. Good habits can’t prevent every kind of illness, but they can help stack the deck in your favor.
Long-term care insurance is great to have—if you can afford it. But premiums have raised a lot in the last few years and they don’t appear to be going down. There are other ways to save for your care in your old age. The important thing is to start saving now.