Wise to Consider Long Term Care Insurance

Carrie Schwab Pomerantz

Dear Carrie: I'm 55 years old and trying to be smart about planning for my retirement years. What I'm struggling with is whether buying long-term care insurance makes sense. What do you think -- is it a smart move or just a waste of money? --A Reader

Dear Reader: You're certainly not alone in struggling with this question. With upwards of 79 million baby boomers currently living in the U.S. -- and people living longer -- there are lots of folks considering long-term-care insurance. And I believe they're wise to do so. That's because just as life-expectancy rates are going up, so are the costs of long-term care.

LTCI is now often an important part of a well-rounded financial plan. However, you bring up a good point. Not everyone will need it. Plus, premiums for LTCI aren't inexpensive. So you'll want to look at LTCI from both a financial and a personal perspective.

THE ODDS YOU'LL NEED LONG-TERM CARE

Of course, there's no way to predict for sure whether you'll need long-term care. A lot depends on your own health and family history. But current statistics provide some food for thought. For instance, the U.S. Department of Health and Human Services says that people who reach age 65 have a 40 percent chance of entering a nursing home. About 10 percent of these people will stay there five years or more. It's estimated that by 2020, 12 million older Americans will need long-term care.

WAYS TO COVER THE COST

The cost of long-term care -- what insurers call the "activities of daily living" such as bathing, dressing, eating, using the bathroom and moving --can be staggering. (The American Council of Life Insurers projects a 2.6-year stay in a nursing home will cost about $496,000 in 30 years!) And many don't realize that Medicare and other types of health insurance don't cover most of this type of care. For instance, Medicare will only pay for medically necessary (set ital) skilled (end ital) nursing and home care, such as giving shots and changing dressings, not assisted-living costs like bathing and eating. Social Security doesn't pay for any type of long-term care.

If you have family to care for you, that might minimize your need for LTCI (realizing, of course, that providing this type of on-going, hands-on care can be a huge task for anyone). Paying for care out-of-pocket may be an option if you have considerable assets. At the other extreme, people with a low net worth might qualify for long-term care provided under Medicaid.

However, if none of the above fits you, LTCI can be an extremely worthwhile choice.

EVALUATING LTCI POLICIES

LTCI can cover a wide range of services, from home health care and nursing services to adult day care. But not all policies are equal, so it pays to comparison shop. Start by checking the quality of the insurer: financial strength rating (A.M. Best is the leading rating organization) and length of time in business. Then review the terms of the policy to make sure you understand:

--What's covered: skilled nursing, custodial care, assisted living?

--Whether Alzheimer's disease is covered since this is a leading reason for needing long-term care

--Limitations on pre-existing conditions

--Maximum payouts and whether payments are adjusted for inflation

--Lag time until benefits kick in

--How long benefits will last

--Whether there is a waiver of premium benefit, which suspends premiums when you are collecting long-term care benefits

--Whether there is a non-forfeiture benefit, which offers limited coverage once a policy is cancelled

Another question to ask the insurance company is how many times rates have increased in the past 10 years. Also, if you're looking at a group policy through an employer, find out if it's portable, meaning that you would be able to take it with you if you change jobs.

FITTING LTCI INTO YOUR FINANCIAL PLAN

LTCI can protect your retirement assets should you need long-term care down the road, but you also need to consider the cost of premiums now. A 2011 report from an international insurance association states that the average individual now pays $2,286 for premiums in the first year of coverage, up 4 percent from last year. Generally speaking, age 50 to 65 is the most cost-effective time to buy LTCI if you're in good health. Premiums tend to go up the older and less healthy you are, and you may become uninsurable at some point if your health deteriorates. So while it's not inexpensive, buying LTCI sooner rather than later may be the smartest move.

Since you're in the prime age group, I suggest you talk to your financial advisor. Buying a policy now could be a good way to protect yourself -- and your assets -- in case of a long illness. Just make sure you exercise a healthy dose of due diligence before you buy.

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of "It Pays to Talk." You can e-mail Carrie at askcarrie@schwab.com. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.