Long-term Care Insurance: Costs and Coverages

Nicki Schuh’s father became dependent on around-the-clock assistance after being diagnosed with advanced stages of Alzheimer’s Disease last spring. As she watched his mental and physical health deteriorate, Schuh said she knew it was time to make decisions about her father’s long-term care.

It can be stressful for adult children to confront the reality of an aging parent, but Schuh said her exploration of care options ended with a surprising sense of relief. She discovered the long-term care insurance policy her father took out in the 1990’s had substantially accumulated.

“We are very grateful that we could evaluate the options knowing there was a $100,000 bank account set aside to have some sort of care provided,” Schuh says of the Northwestern Mutual insurance policy, which covers her father at about $90 a day for three years.

Schuh’s father was able to remain in his home through the support of his wife and a part-time caregiver, who continues to be paid with insurance money.

“It would be very different if we couldn’t bring anybody in,” Schuh says. “I’m sure we’ll end up using the whole policy … it’s a significant burden off of us.”

Long-term care insurance: Is it right for you?

Long-term care insurance options generally cover at-home care, assisted living or nursing home care, circumstances individuals should be considering earlier in life, insurance experts say.

“It’s really important for people to think about this when they’re young and healthy,” says Chris Lynch, a California-based long-term care insurance expert who represents various companies.

Healthy people who evaluate long-term care policies in their 40’s often benefit from preferred underwriting and lower premiums. It’s a mistake to put applying for long-term care insurance off until a loved one faces a medical calamity, experts say, because at that point he or she is likely to be denied.

“We’re all going to age, and aging costs money, and the responsible thing to do is to look at alternatives to how this cost is going to be born,” Lynch says, adding that about one-third of clients he works with get denied for long-term care insurance, usually due to medical conditions.

Purchasing long-term care insurance

Long-term care insurance is not an easy product to understand. Several variables, including age, health and type of plan, affect coverage costs. Although there’s no hard rule on what a person pays, Lynch said someone who is young and in good health could get by with a premium of less than $50 a month.

“It is an individual choice to pay premiums and share the risk with an insurance company or assume it all,” Lynch said. “I think everyone who values choice, dignity and peace of mind would benefit from a policy, even if their net worth is high.”

Experts offered five trusted tips to help evaluate long-term care insurance costs and select an appropriate plan:

• Identify the right company for long-term care insurance. Go with companies that have been in the industry for a long time.
• Find an agent who has taken the time to know the long-term care insurance market. Look to buy coverage from a long-term care insurance specialist who is willing to explain the wide-ranging options.
• Do not spend more than 7 percent of your income on the premium. While it’s most common for individuals to choose a package that would cover long-term care for five years, if this costs more than 7 percent of your income, explore other options.
• Be aware of the cost of care in your zip-code. Research the cost of nursing home and at-home cost per day in your area to help determine the amount of coverage you might need when the time comes.
• Purchase inflation protection. Pay for inflation protection even if it costs more than a premium, as you’re typically buying coverage for an event that is not likely to happen for 20 years.

Why relying on Medicare might not pay off

While some people plan to spend down on their savings with hope that Medicare will cover long-term care costs, insurance experts call this a major gamble. As advancements in science are made, individuals are living longer and have great potential to face an expensive, drawn-out death, Lynch said.

“Anyone who does not have (long-term care) insurance today is by default choosing to self insure,” Lynch says. “If there are no problems as one ages, this was a wise choice. If there are long-term problems related to dementia or Parkinson’s, a claim can cost in the millions.”

Irving Birnbaum, a Chicago-area authority on long-term care insurance, said there’s a one in 10 chance a person who is 65 will be cognitively impaired, followed by a one in four chance for a person who is 75 and a one in two chance for a person who is 85.

“Your only choice if you (rely on Medicare) is going to be a nursing home,” Birnbaum says, “which for most people is a last resort.”

It’s important to recognize, Birnbaum said, that long-term care insurance is non-refundable, such as in the case of sudden death. Insurance agencies are for-profit companies -- they make money by taking calculated risks with the hope that a person never makes a claim.

But anybody who puts off exploration of long-term care options could eventually place undue stress on their children, Birnbaum said, stress Nikki Schuh knows first-hand she does not want to pass down.

“We should all be getting (long-term care insurance) at an early age,” Schuh said. “I look at my teenage children and think that I don’t want to be a burden to them when I get to that age.”