Research has found that more than half of people who are 65 years old today will need long-term care at some point in the future.
Even more sobering is the fact that the average cost for long-term care is $138,000. While most people will need help for less than two years, 1 in 7 Americans will need care for five years or more. The financial consequences could be dire indeed, as Medicare covers only short periods of care, while Medicaid kicks in only after assets have been depleted.
Long-term care insurance can cover at least a portion of home, assisted living or nursing home care. But the industry has its issues. Insurers previously misjudged premium income versus claims and that, combined with low interest rates, caused insurers to vastly increase prices. Moreover, many left the business entirely and now there are only about a dozen companies that offer the insurance.
The industry is evolving and offering new types of coverage, but the choices can be confusing. But there are three major types of insurance to offer clients. The first is traditional long-term care. For around $2700-3000 a year, it’s possible to lock in a specific benefit for a set number of years – oftentimes 3. An inflation rider will increase the daily benefit over time, and the policy is triggered when the insured is unable to perform two of the six essential activities of daily living (dressing, bathing, using the toilet, eating, continence, and transferring to a wheelchair). Benefits start after a 30-90 day waiting period. Although premiums are much more stable, it’s wise to budget a large increase down the road.
There’s another more modest option in short-term care insurance, which covers up to 360 days in a home or facility. There are far fewer medical underwriting questions and premiums are lower. Moreover, for clients who use less than the daily benefit it may be possible to extend coverage. These types of policies also tend to have more stability in premium rates. However, the policy might not cover all care options. For example, not all pay for home care. Nor does this policy cover catastrophic circumstances, since they offer no more than a year of care.
Hybrid life insurance and long-term care policies are an increasingly popular option, with sales up by 50% since 2012. With this type of policy, the holder can use the death benefit to pay for long-term care. If the holder never needs care, the beneficiaries get the life insurance payout. Premiums are fixed, and often paid all at once.
For more information, please read:
Long-Term-Care Insurance Gets a Makeover | Consumer Reports