Insurers frequently lament that only 1% to 3% of those in the logical market for long-term care insurance actually buys that insurance. Their view is that most Baby Boomers are engaged in short-term thinking and that the nation will have a severe fiscal crisis as it tries to finance care for aging long-term Boomers.
Consumer Reports recently provided a different view, casting doubt on the policies and arguing that many people are wisely not purchasing long-term care insurance. CR‘s conclusion is that “long-term care insurance is too risky and too expensive.” CR‘s specific criticisms of long-term care policies are:
CR makes some good points, but it overstates its case. It as much as admits this by continuing the article, rating long-term care policies and giving advice to buyers.
Readers should follow the long-term care policy recommendations I’ve made in past visits and made elsewhere in this Archive. Here is a summary of my recommendations.
Give careful thought to not buying insurance if total assets are under $200,000 or over $2 million. These are not “hard numbers” because the cost of long-term care varies considerably around the country. In expensive urban areas, $2 million might not be enough wealth to self-insure.
Or you can plan to pay long-term care costs from your assets and buy a life insurance policy for your heirs to inherit in case the care depletes your estate. Life insurance is cheaper for most people than long-term care insurance. Also, life insurance, unlike long-term care insurance, is certain to pay benefits eventually. You also could have your children help pay for the long-term care insurance, under the theory that the insurance preserves the estate for them.
Shortening the benefit period (or lifetime benefit) also reduces premiums. Only a relatively few people need long-term care for extended periods. A benefit period of four years will cover most people. Be sure you have inflation protection (compound, not simple) since long-term health care costs are rising about 6% annually.
Examine the covered care section closely. It should cover home, assisted living, and nursing home care. A prior hospitalization stay should not be required. Alzheimer’s and similar diseases should be covered. You want to be covered for both skilled nursing and custodial care. Home care should pay for things such as cleaning and cooking in addition to skilled nursing care.
Of course, you want to check the financial stability ratings of the insurers. There is no guarantee the ratings will be maintained 20 or more years from now, but it is what we have to go by.
In the March 2002 issue I explained how you can adjust these terms to make premiums affordable and the policy more effective. More strategies for policy-shopping were in the July 2003 issue. The articles are in the Health Watch section of the web site Archive.
A very difficult issue is the age at which to consider buying a policy. Insurers recommend considering purchase as early as age 40. They point out that premiums are very low, you could become disabled at any time (from a car accident, for example), and about 16% of those who wait until ages 60 to 69 have health issues that make it difficult to buy affordable long-term care insurance.
The case for waiting is that the policies, and long-term care, changed a lot over the last 20 years. Buying “too early” could leave you with an affordable but obsolete policy. Also, many of the early purchasers of long-term care insurance dropped the policies before getting any benefits. Buy too early and the policy will seem like an unnecessary luxury when money gets tight. It is better to buy when you are closer to needing the coverage but not so close that your health or the premiums prevent a purchase. Somewhere between ages 50 and 70 is when most people should seriously consider long-term care insurance.
For the record, CR gives its top ratings to policies from three companies: Physician’s Mutual, Farmers New World, and John Hancock. Premiums for a 65-year-old range from $3,520 at PM to $5,486 at Hancock. At age 70 the premiums were $5,414 to $7,279. Only policies available in California were considered, and the premiums are for California.