UPDATED October 9, 2019
There are several articles discussing the costs of Long-Term Care Insurance. Many of these articles are factually misleading or inaccurate in many ways. Old "legacy" policies have had premium increases, however today's Long-Term Care Insurance is affordable for many American families, especially for those who plan in their 40s or 50s prior to retirement. Plus, these plans are custom designed.
So where do you start to get accurate information? Generally, your computer, smart phone, or tablet. If you are like many people these days you probably start with the internet to research products and services. It is easy and convenient. It can also be a maze of inaccurate or misleading information. Do a search on long-term care planning and long-term care insurance; you can find a bunch of stuff. This “stuff” suggests anything from LTC insurance is affordable and essential to very expensive and not necessary.
Now what? First, understand everyone has a point of view, and the internet is the ultimate in free speech. So, you should review sources and use some common sense.
First, if you have first-hand knowledge of a parent or family member needing extended care you know how real the risk of Long-Term Care can be. The financial and emotional impact is tremendous. If you have not yet had one of these experiences, then you need to review facts.
The US Department of Human Services says if you reach the age of 65 you have a 7 in 10 chance of needing some Long-Term Care service before you pass. This doesn't mean everyone will need full-time care, but it does mean you risk is high as you get older. With medical science advancing, we live longer. As you age, you will need help with activities of daily living or require supervision due to memory loss. We need long-term care due to illnesses, accidents or the impact of aging.
The risk of Alzheimer's disease and other types of dementia increases with age. 1-in-9 Americans over 65 have Alzheimer’s disease. (Alzheimer’s Association). One-third of Americans over age 85 are afflicted with the illness. (Alzheimer’s Association). 1-in-3 seniors die with Alzheimer’s or another kind of dementia. (Centers for Disease Control). The proportion of People with Alzheimer’s Disease in the United States by Age: (Alzheimer’s Association) 85+ years – 38%, 75-84 years, 44%, 65-74 years, 15%, <65 years, 4%. Alzheimer’s is only one type of condition which can cause the need for care.
Health insurance and Medicare(including MedicareSupplements) will only pay for a small amount of long-term skilled care, and this is only if your situation is getting better. They pay nothing toward long-term custodial care (help with activities of daily living or supervision due to cognitive issues). This is the type of care most people will need on an extended basis.
For many people, Long-Term Care insurance is very affordable and an easy way to protect your future retirement assets. This protection includes your 401(k), 403(b), IRA and other savings. Also, these plans can help ease the burdens placed on your family during a long-term care event. Without an advance plan a family member, spouse, daughter or daughter-in-law become the default caregivers. This puts an incredible burden on them emotionally, physically and financially.
You may have read that these policies are expensive. While you could design a plan which is very expensive, it generally would lead to being over-insured. For example, a married 50-year-old male, In excellent health, could have a plan from a major Long-Term Care insurer company for as little as $77 a month or less. In this example, its initial benefits would be $3,500 a month, a $150,000 pool both growing 3% compounded every year. What this means is the benefits, not the premium, increase every year.
By the time the 50-year-old reaches 80, they would have a $364,089 pool with $8,495 a month available to them all tax-free. In a partnership state (which provides additional dollar-for-dollar asset protection) you have even more protection. Most experts suggest you have enough benefits to make a catastrophic situation manageable. If you live in a state where the cost of long-term care is very high (northeast or northwest, for example) you would increase the benefit. If you have a strong family history of memory loss or other health issues which cause longer extended care situations an LTC specialist may recommend larger initial benefits.
Don’t forget many tax incentives are available when you purchase an LTC policy. Also, you can use a health savings account to pay for premiums as well on a pre-tax basis. While most people are buying LTC insurance in their 50’s and even younger, if you have stable health you can obtain quality protection at affordable premiums in your 60’s.
"A typical couple where both spouses are age 60 will pay between $100 and $150 a month each for American Association for Long-Term Care Insurance (long-term care insurance protection." The AALTCI is a national consumer education and advocacy group.Jesse Slome, director of the AALTCI).
“This has never been a one-size-fits-all product, and many consumers are regrettably presented with just one option, often the most costly."
Costs for virtually identical policy coverage still vary significantly from one insurer to the next. "Insurers each set their own rates and the price for virtually identical coverage can vary," Jesse Slome states. Premiums can vary as much as 100% for the exact same coverage. – "You generally only buy Long-Term Care insurance once, so it's important to do it correctly the first time," Jesse Slome said.
Considering the costs of Long-Term Care, this is a bargain. The insurance companies are paying benefits in a big way. The nation’s long-term care insurance companies paid $10.3 Billion in claim benefits in 2018 according to the AALTCI.
You may also have read about rate increases. Much of the press on this is overblown as pricing on very old policies were way too low for many benefits and underwriting risks they were taking at that time. Plus the low-interest rate environment we have had for so many years has created some of these issues.
The good news is today insurance companies have priced plans based on the low-interest rate environment. Regulations require more advance thought in the pricing of products before they even hit the market. The regulations don't mean there is no risk, but you can feel good about today’s pricing of products.
Rate stability rules are in force in most states and they require very conservative assumptions than ever before. It makes the chance of future increases low according to a study from the AALTCI. You can read the article discussing the study by clicking here.
There are also plans which provide a guarantee of no rate increases if you feel you must have one for peace-of-mind.
Find a specialist in long-term care insurance who works with all the major companies, not just one or two. Be sure they have real-world experience. The AALTCI suggests three questions to determine an insurance professional’s expertise in the field. How many years have you focused on long-term care planning? How many long-term care insurance policies have you sold? How many long-term care insurers are you appointed with?
An experienced specialist will have at least 300 or more clients with a Long-Term Care Insurance policy. Your top industry specialists may have thousands.
The financial costs and burdens of aging are real. The ability to safeguard your future and provide for peace-of-mind should be an essential part of your overall retirement plan.