Is there any rule of thumb to
determine if I should buy long-term care insurance?
Long-term
care insurance can easily cost more than $1,000 a year, which is one reason
some experts say you shouldn't buy the coverage unless you already
have other types of insurance and cash to spare. According
to the National Network of Estate Planners, Denver, Colo., "Consumer
and financial experts generally agree that long-term care insurance is a bad investment
. . unless you will be able to pay the monthly premium with no
more than 5% of your income.
If you can, and in addition to your home, you expect to have over $10,000 in assets and over $30,000 per year in income when you reach your 80s, then a long-term care policy with high benefits and compounded inflation protection might be a reasonable investment if you can find and qualify
for a good one."
If I'm in my 30s or 40s, why should I be concerned about long-term care?
If your under 55, you cant be blamed if you consider
purchasing a long-term care policy a waste of money. After all, it may be a long time before you need long-term hospitalization or nursing care. But just as with life insurance, its never too early to think about buying
long-term care coverage.
Such insurance is much cheaper when your young because the insurer
knows its unlikely you'll need to be hospitalized any time soon.
For example, if you sign up when your 50, your annual premiums will
be about 30% as much as those for a 75-year old, and you will be covered for 25 years more. In addition, its much easier to qualify for long-term care
insurance when you are young.
All the application forms ask you about a host of medical conditions you may have experienced: If you answer "yes" to any one of them, your application may be rejected. But since most of those conditions develop only as you grow older, you probably haven't had them. Long-term care
policies are good investments for some people and poor investments for others. Being
young doesn't automatically exempt you from deciding whether to buy such a policy.
From whom
should I buy long-term care coverage?
If you decide to buy long-term care insurance, choose
an insurance company that will be financially strong enough to pay any claim you might make. Stick to plans offered by insurers who get the top financial ratings
from independent rating firms. You can find ratings from both Standard & Poors
and Duff & Phelps on the Insurance News Network Web site.
You also want to be sure that your comfortable with the person who actually sells you the plan. According to the National Network of Estate Planners, Denver, "You should develop a reasonably high
trust level with the person who presents a coverage plan to you.
You should feel that you have the ability to openly communicate
your concerns and receive accurate answers to your questions. It would be beneficial for you to buy from a representative of an organization that can provide current and future service to you as questions or needs arise."
Another reason to build a lasting relationship with the person who sold you the plan is that you should review your coverage with the agent at
least once a year. If your comfortable with the person, the review process will go
more smoothly.
What is the
typical premium for long-term care insurance?
A typical policy begins paying benefits 60
days after the onset of an illness or injury that requires long-term care. Benefits
may last for up to 50 months and are increased 5% annually to keep pace with inflation.
While there are a lot of additional variables that can
affect premium rates, the biggest is ones age when the insurance is purchased. Typical
current preferred rates are:
| Age Annual Premium |
| 40 |
$240 |
| 50 |
$460 |
| 60 |
$1,000 |
| 65 |
$1,550 |
| 75 |
$3,300 |
| 79 |
$6,150 |
A preferred rate is typically a 25% discount from a standard rate. If a couple applies jointly, many companies will automatically grant them a
preferred rate. Single applicants can typically qualify for a preferred rate if they
haven't smoked in the five years preceding the application, drive at least 1,500 miles
per year and work or volunteer outside the home for at least 8 hours per week.
The above characteristics represent common provisions, benefits and rating procedures in the industry. However, keep in mind that each company
will have its own unique policy and rates. Just make sure you understand what your
buying and how much your are paying. Talk to more than one agent or, for a small fee,
a financial planner will assist you.
Do I need a waiver of premium provision in my long-term care plan?
Nearly
all long-term care insurance policies contain a provision that waives the policy's premiums
if you are eligible to collect benefits. After all, if your placed in a long-term care
facility, your probably going to need every cent that you can save and you certainly
wont be able to go out and work.
Be sure that any policy you purchase has such a provision. But also make sure you understand how the provision works. Some insurers will waive
the premiums on the first day that benefits become payable. However, others require
that benefits be paid for a period of 90 days before premiums will be waived.
Do I need an inflation-protection provision in the contract for my long-term care insurance?
Long-term care insurance is expensive, with a typical
policy for people in their 60s often costing
more than $1,000 a year. But if you've decided to purchase such coverage anyway, its
important to spend a little extra money to ensure that the benefits payable under
the policy will rise each year to keep pace with inflation.
According to the National Network of Estate Planners, Denver, Colo., "If, as is often the case, you do not collect benefits for 10 to 30 years after
you buy a policy, a benefit amount that now seems reasonable will be woefully inadequate
when you actually get the care.
It is essential, then, that your policy provides automatic inflation protection -- not merely the option to buy added coverage. And the best inflation
protection is compounded-meaning that the percentage increase is based on the immediately
previous, not the original benefit amount.
Good inflation protection raises premiums, but without it, the policy may
be a total waste."
