Growing Older / Liz Taylor
Long-term insurance costs: Here are five factors driving them
• Dear readers: On June 30, I began a six-part series on long-term-care insurance that appears every other Monday through the summer. This is Part Five.
The first question everyone asks about long-term-care insurance is, "Yeah, but what does it cost?" The answer is, "It depends." There are five factors that influence price, and you need to think about them carefully.
• The first is your age when you buy a policy. The younger you are when you buy, the cheaper it is, and unlike health insurance, the price is designed to stay constant, or "level," over the years and not increase.
In addition, you don't save money by waiting to buy. The younger you are, the less in total premiums you pay over time, says Liz Berman, a long-term-care-insurance specialist in Port Townsend.
Here's a comparison provided by long-term-care insurance brokers, Lehmann/Wood & Associates of Bellevue. Take a policy with a three-year lifetime benefit, $100/day nursing home coverage, $100/day home-health coverage, 90-day elimination period and 5 percent compound inflation option. At age 50, you'll pay around $700 a year for this policy. If you wait until you're 55, it'll be $800. At age 60, it will be $1,000; at age 65, $1,400 a year; and at age 70, you will pay $2,100 a year, and so on.
Remember: As your annual premiums stay constant, your benefits increase, thanks to the automatic inflation option.
Does this mean your annual premiums will never increase? No. In Washington state, which has tough long-term-care-insurance regulations, a company can increase its rates only if it proves to the state insurance commissioner that it's necessary — and then for everyone in your age group. I expect my policy to cost a little more over the next 30 years, but not astronomically more.
• Your health is the second and most important influence on insurance price. Good health means you're eligible to buy a policy (and may even earn a discount as I did), while poor health can put you out of the game completely — or result in a surcharge. Just as you don't wait to buy car insurance until you have a crash, the same logic applies to long-term care insurance. Don't wait until you've been diagnosed with diabetes or a stroke to apply — another incentive to buy in your 40s or 50s. Different carriers follow different underwriting rules, so explore what's available rather than assume you're ineligible.
• The third influence on price is the amount of coverage you choose. What other resources will you have to pay for care someday, and how much insurance will you need to "add on?" Remember: a $200/day benefit policy is twice the price of a $100/day benefit.
• The fourth influence on rates is the company you buy from. Sixty-four companies are licensed to sell long-term care insurance in this state. In the example I used above (three-year benefits, $100/day coverage, and so on), the prices were an average of what four companies charged, ranging between $565 per year to $819 per year for a 50-year-old, and between $1,836 per year and $2,565 for a 70-year old. So compare, compare, compare!
• The final influence on rates is your lifestyle. Increasingly, long-term-care-insurance companies are reading the same statistics you are and saying, "If you're significantly overweight, smoke and spend your life as a couch potato, you're probably going to need care someday." So they charge more.
To get the best price, be healthy, don't smoke, be height-weight proportional and exercise. There are also discounts for couples and partners, and even family members who live together.
Differences between group and individual policies
More companies are offering their employees the opportunity to buy group long-term-care insurance these days. There are several benefits, the most important is that you can buy it (during the open-enrollment period) regardless of pre-existing medical conditions. So, people who are significantly overweight or who have had a recent bout of cancer may be insurable as part of a group but not as an individual. In addition, many group policies cover family members, and you can pay through payroll deduction.
But according to Kiplinger's Retirement Report, "A group policy may be a bargain but a bad deal." Typically they leave out automatic inflation protection and are skimpy with the better benefits. Also, they don't offer health or partner discounts. So, if you're evaluating a group plan and are healthy, shop around and compare what you can buy on the individual market.
Who should or should not buy long-term-care insurance?
People on the opposite ends of the income and asset spectrum probably shouldn't buy long-term-care insurance. Medicaid covers care for the poor. So, if buying a policy would seriously compromise your lifestyle, don't. Those who are wealthy can self-insure, paying for their care out-of-pocket.
One rule of thumb for what constitutes "wealth" is $1 million in liquid assets — but if you're young enough not to need care for 20 or 30 years, that figure won't put a dent in the cost of care when you might need it. And today, it probably won't leave much to pass down to your kids.
Two of the most important reasons to buy insurance have to do with your family — or lack of one. Families provide 70 to 80 percent of all long-term care. People with no children must pay for their care a lot sooner than those who have kids or a spouse. And just because you have kids is no guarantee you'll have care. Do they live nearby? Can they be counted on to provide care?
Second, the stress of caregiving for older spouses is psychologically and physically harmful. Older caregivers face serious health risks and depression — even premature death — compared with people of their age group who don't provide care. So don't put your family or friends in the position of being your only caregivers. As Joan Bergy of Hansville wrote me recently, "My husband uses his home-care benefit three days each week — and is happier because I'm not 'tied down.' " Insurance can take the heat off older caregivers by paying for supportive services.
In my next and final column in this series, I'll tie up a lot of loose ends through a "Frequently Asked Questions" segment, and talk about what to look for in a good long-term-care insurance agent.
Liz Taylor, a specialist on aging and long-term care, consults with families and teaches workshops on how to plan for one's aging — and aging parents. E-mail her at firstname.lastname@example.org or write to P. O. Box 11601, Bainbridge Island, WA 98110.
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