Growing Older / Liz Taylor
Long-term care Q&A: Get ready for the storm
A storm is brewing that threatens to swamp this nation. Because we're living longer than ever, many more of us now require assistance with our most basic needs — some for weeks, others for years.
The costs are already sinking most states' budgets. But get ready: Soon 76 million baby boomers will reach their 80s, 90s and 100s, and most will demand top-notch care. We've covered a lot of territory in this series. Today I answer some frequently asked questions on the topic.
Q. How do I buy from a reliable company that will still be around when I need care?
A. Insurance companies are highly regulated, especially in Washington. There are rules about how they invest and about how much they must have in reserve to cover future claims. It's unlikely a long-term care insurance company will go belly up, à la Enron, says Ken Story of the Gjurasic/Story Group of Seattle, a specialist in long-term care insurance. It's more likely that a financially unhealthy provider will raise rates. Here's how to avoid problems:
• Buy only from a company with an "A" (excellent) or "A+" (superior) rating from A.M. Best (www.ambest.com or 908-439-2200, Ext. 5742), a business that rates the financial strength of insurance companies. Although two highly rated companies recently raised their rates in Washington, "B"-rated companies tend to raise them more often and more steeply. Some "A"-rated companies haven't raised rates in 15 years.
• Make sure the company has been in the long-term care insurance market at least 10 years, giving it the experience to develop actuarially sound rates so that it's less likely to raise them in the future.
• Ask about the rate-increase history of the company you're considering.
• Ask whether your policy offers any kind of rate guarantee or option to pay it off over a period of time, such as 10 or 20 years. Note: This will cost extra.
Q. What's the best age to buy long-term care insurance?
A. There's no magic formula, but one guideline is to buy when you're healthy and can afford it. Of course, affordability depends on other priorities, such as putting your children through college. But health can be unpredictable. Because of this and policy rate structures, I recommend people start looking at long-term care insurance options in their late 40s.
Q. If I never need care, do I get a refund?
A. Some long-term care policies do offer a refund option, but I don't recommend it — it's too expensive. Here's my attitude: If I pay on my long-term care insurance for the next 40 years but die without ever needing care, I will feel blessed. My goal is to never use my policy. But it's there, just in case.
Q. My daughter says I don't need to buy long-term care insurance because she'll look after me.
A. Adult children who make such promises are thinking with their hearts, not their heads. The question for you is: Do you really want to put your daughter in this position? Would she be able or willing to quit her job to care for you? If she moves away, would she move back — or could you move there? Would she move in with you if you needed round-the-clock care? Even with insurance, your daughter is still likely to care for you — but informally, part-time and with less of the burden.
Q. Why can't I just save money to pay for my care?
A. Nursing homes in our area cost $6,000 to $7,000 a month, and costs are rising faster than the rate of inflation. Home care can be even pricier because it's one-on-one and often round-the-clock. Few people can or will save these sums. Also, we've learned valuable lessons in recent years about not assuming that our savings will outpace inflation — they might even shrink.
Q. My mother bought long-term care insurance 10 years ago, but her policy isn't as good as what's available today. What should she do?
A. Because she's now older and may be less healthy, a new policy will cost far more than what she's now paying. I rarely advise starting over. Instead, consult with an agent you trust to see whether it's appropriate to keep her older policy and perhaps add an additional layer of coverage.
Q. If I buy a policy here, then move to another state, will it still cover me?
A. All policies sold in this state are good anywhere in the U.S.; some are good in Canada, too. However, few policies cover you in other countries. Washington is a good place to buy long-term care insurance because of our strong regulations, and, if you move away, you can take it with you. In this state, unlike many others:
• Your policy must cover cognitive impairment, such as Alzheimer's disease.
• Your policy can never be canceled except for failure to pay.
• In case you miss paying your premium on time, the company must offer you the option of notifying a third party, such as a son or daughter, and give you a grace period of 30 days.
• The company can never reduce your coverage.
• You must be offered an automatic compound-inflation option.
• Your premium will be fully refunded if you change your mind within 30 days of receiving your policy.
• All rate increases must be approved by the Insurance Commissioner's office.
• If you're considering replacing a policy with another, the agent must make a side-by-side comparison of their differences.
Kudos to our state's Legislature and Insurance Commissioner's Office over the past decade for making Washington an exceptionally consumer-friendly state in which to buy good quality long-term care insurance.
Q. What are my chances (I mean really) of needing care?
A. According to a variety of sources, about 50 percent of people who reach age 65 will spend some time in a nursing home (on average 2.9 years). But I think this figure understates the risk. First, it ignores the significant amount of care provided by family and friends, home-care agencies, assisted-living facilities and other alternative-care settings. We don't have good data on these. Second, many people need care but never go to a nursing home, like my mom who died of Alzheimer's disease in an assisted-living facility. We're using nursing homes less today compared with the past, but we're using other services more — because we're living longer. The older we get, the more likely we will be to need care.
"People are bending but they're not breaking," C. Dennis Brislawn Jr., an estate attorney in Kirkland, said, describing the frailty of some of his very old clients. Modern medicine is helping us live longer. When we're healthy, it's a blessing; when we're not, we can need care for a long, long time. The trouble with predicting your future based on statistics is that you never know which one you'll be.
Q. Should I buy a policy that's part of my life-insurance policy?
A. Probably not, says John Peterson of Pacific Advisors in Bellevue, an agent who sells both life and long-term care insurance, because they have very different purposes. Life insurance pays your heirs when you die, long-term care insurance pays you while you're alive but disabled. Many people reach a stage in life when they don't need life insurance anymore. If you buy a dual-purpose policy, you usually compromise both parts of the contract.
Q. How much coverage should I get?
A. Don't buy more than you can comfortably afford. To get at that, consider three questions:
• What is the cost of care where you live (or intend to live in the future)?
• How much of the financial risk are you willing to assume, versus how much you want the insurance company to assume?
• How much can you afford to spend? Your answer to this last item is personal; it's usually not necessary to share financial information with your agent or company in order to determine a reasonable amount of coverage.
Q. How do I know who has the best deal?
A. Shop around and compare! Compare a minimum of three policies. Buying long-term care insurance is like buying a new car — it's complicated, expensive and important. But unlike a car, long-term care insurance must last the rest of your life.
Q. Why is this insurance so much harder to grasp than others? I buy home insurance with no qualms, but I'm really struggling with long-term care insurance.
A. Excellent question. I think there are three reasons.
• The complexity of the policies and lack of standardization make it extremely tough to choose (Note to insurance companies: Make your policies easier to compare!).
• The unpredictability of needing care.
• It's personal, and we don't like to think we'll ever be unable to care for ourselves. I certainly feel that way. Yet, every evening I visit my dad at his nursing home. Among the 50 or so other residents in the dining room, only about 15 can feed themselves. Did any of them ever expect to be there? Did my dad, once a high-level executive?
Q. What do you look for in a good long-term care insurance agent?
A. There are several things:
• If you consult an agent who represents only one company (a captive agent), be sure to consult with another. Insurance companies target their markets differently — some offer better prices for older people, others for younger people. They vary in how unhealthy you can be to be accepted. Since you want a policy that fits you, talk to an agent who can choose from among a wide variety of policies.
• You want an agent who is very knowledgeable about the long-term care system — who understands the terminology and knows what different polices can and cannot do for you.
• Look for a seasoned agent — someone with at least five years experience specializing in this kind of insurance. Be careful about buying from a financial planner or investment adviser who "dabbles" in long-term care insurance — you want an expert. This is a policy you're going to pay on for years, even decades. You don't want to wait until you need it to discover it wasn't very good.
• Finally, steer clear of buying insurance on the Internet — it's full of misleading information about long-term care insurance. Use it as a reference, but buy products from someone you can ask questions of face to face.
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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