Who Needs Long Term Care Insurance?

Yesterday I was speaking with a friend, and she told me that both her mother and step mother suffered from Alzheimer’s disease. Her step mother lived with it for twenty years. Her mother required five different care givers at one point.

One in nine people in the U.S. over the age of 65 has Alzheimer’s and more have other forms of dementia. Alzheimer’s and dementia are just two of the many conditions that we will face as we get older that could leave us needing long term care of some sort. About 70 percent of people over the age of 65 are expected to need long term care in their life time.

The costs of long term care are nothing short of frightening. The Society of Actuaries estimates the average cost to care for an Alzheimer’s patient, as an example, is $56,300 per year. The National Association of Insurance Commissioners (NAIC) reports nationwide average nursing home costs run $78,000 per year and assisted living runs around $39,000 per year.

How will you pay for these kinds of expenses? Medicare and Medicare Supplement policies do not cover the cost of long term care, and neither does health insurance. Medicaid will cover the costs of nursing home care as well as some in-home and community based services for low income families with little to no savings. It will not cover the costs of assisted living facilities. Medicaid pays for about two thirds of all paid long term services and support costs in the U.S. But most care is provided informally by family members and is paid for with individual savings and out of family members income.

Long term care (LTC) insurance is worth considering for some. However, premiums for LTC are high. The average cost to cover a couple at age 60 is about $3,400 per year, with premiums rising for older ages. The NAIC recommends paying no more than 7 percent of your annual income in premiums. If your annual income is less than $49,000 per year, LTC insurance may be out of reach.

LTC insurance may be a good option for you if you can afford the premiums, and spending down your assets to pay for care would put your spouse in a difficult financial situation. The best time to buy LTC coverage is when you are between the ages of 52 and 64. After that the premiums become even more costly.

In deciding whether you can afford the premiums, build in some room for future premium increases. While regulations require insurance companies to have rate increases approved by the state, LTC premiums have been known to rise by double digits. You wouldn’t want to have to allow your coverage to lapse because you can’t afford it any longer.

Unfortunately, the market for LTC insurance is very thin. The top 25 companies control 96 percent of the market share. The largest carrier, Genworth Financial, is currently having financial difficulties. Before you buy, shop several carriers. Some states (Oregon is one) provide a summary of carriers providing policies in the state and include information on the company’s financial strength and history of rate increases. If that isn’t available in your state, ask your agent for that information.

There are alternatives to a strictly LTC policy. Some life insurance and annuity policies provide benefits if you need long term care. For example, some life insurance policies allow you to tap the death benefit while you are alive if you meet certain criteria for needing care, and some income annuities are designed to increase your monthly payment based on the same criteria. These options are attractive because they offer benefits beyond the long term care insurance. They may also be a good alternative for those who can’t get coverage due to health issues.

Of course, the decision doesn’t have to be all or nothing. You could use LTC insurance, life insurance and/ or an annuity to cover part of the costs and rely on your savings and investments for the balance. The key is having a plan for how you will manage your or your spouse’s care as you age. The earlier you begin to think about it, the more options will be available to you.

Image courtesy of renjith krishnan at FreeDigitalPhotos.net


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