Hidden Truths About Long Term Care Insurance

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Should you or shouldn’t you? Seems as if someone is always promoting the purchase of long term care insurance. Most of us don’t want to think about getting old and needing anything like that. If we ever think about it, it’s a thing we want to defer until later. The insurance industry really wants our premium dollars and has done extensive research and aggressive marketing to get us, especially Boomers, to buy these products. Do we need it? Is it worth the cost?

Let me begin by saying that I am not connected to the insurance industry and have no affiliation with any company. I endorse no products nor speak for anyone else. I am just a consumer, but someone who happens to work in the aging care field.  Because the cost of care for aging parents kept coming up so often in our work at AgingParents.com, I needed to know more about long term care insurance. So, I set about finding out as much as I thought would be helpful for me in my role as advisor.

I talked to brokers. I read literature. I compared costs. I talked to my own clients about how much it costs them to care for spouses, parents, and other relatives at home or in assisted living or nursing homes. Here’s my take. Generally, unless you have a very large amount in liquid assets squirreled away and you don’t mind spending a significant chunk of it on long term care for yourself, spouse, partner, or disabled other loved one, long term care insurance is a good thing.

I say that only because we just don’t have any other resource to pay for help at home, assisted living or nursing home care. Most of us wouldn’t be happy paying out a six figure bill in cash each year for long term care. Medicare doesn’t cover long term care of the “custodial” variety most people need in the long run. The U.S. Department of Health reports that 70% of people who reach age 65 will need long term care services at some point in their lives. Health insurance does not cover long term care either. That leaves you, your savings and your retirement income to pay for it for as long at it takes.

My friend’s mother has had dementia for 13 years. She and her sister pay out of pocket each month to support their mom, at an annual cost of over $100,000 per year. How long does it take to burn through a million dollars at that rate? Physically, mom is in pretty good shape for 92. This could go on for a lot longer. Do you want this to be your kids, paying for you?

Now for the caveats. If you decide to go forward and look into getting long term care insurance for yourself, here are some things to keep in mind.

Finding the Best Policy for Your Needs

First, get a broker who is a specialist in the field of long term care insurance (LTCi). Generalists may not know all the essential details. There are a lot of details to understand and many product choices on the market.

Next, compare prices. As with auto insurance, for approximately the same coverage for the same length of time, you can pay thousands of dollars more if you pick the wrong company. If you’re inclined, buy before age 60, when prices are automatically higher. Just because.

Look carefully at the concept of “elimination period”. That’s code for deductible. Some are huge and very burdensome. Maybe the insurers who created these hope you’ll die off before you can collect, once you need the help. A three month elimination period for a frail elder can be a long and risky time. In any case, no elimination period or a very short one is best.

If you are considering a particular insurance company, ask the broker about the claims history of the company. Find out what the insurer has actually paid out in benefits and for how long. If the company has only been in the business of LTCi for a few years, there may not be enough history to rely on. Bigger amounts paid out in claims over many years is an indication of a more honest claims philosophy.

Ask if the company has ever been on the receiving end of a “bad faith” lawsuit, especially a class action case. One of my own clients was insured with one of these bad apple insurers. I had to do some serious cage rattling to get her husband’s benefits flowing. The nasty folks at this insurer seemed to be doing all they could to keep their insured from actually getting anything he’d been paying premiums for for 25 years. Now he does receive payments, but it is an ongoing fight to keep them flowing. The class action bad faith case against the company was in full swing at the time I was helping the client. I could see exactly why. They were doing just what they were accused of doing, and to my own client!

Finally, decide how much risk you are willing to assume for yourself and anyone else for whom you would be responsible for long term care. The chances are, we’ll all need some kind of help in our future. As with any insurance, you are protecting yourself against risk. You either take on the risk yourself, which is fine if you can afford it, or not. If you want the protection of insurance, above all, be a savvy consumer and study what you are buying.

Here is a resource, Kiplinger’s, November, 2010: A 3-Step Guide to Smarter Long-Term Care Planning, www.aaltci.org/guide.

Long term care insurance is a complicated product. You will need to read, listen, ask questions and think it through. If you’re wondering if I bought some for myself, the answer is “yes”. I did the math. It made sense to me. It’s not for everyone and it doesn’t cover everything. But it looks to me like good planning to have it, for many of us.

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