qualify for insurance with another company. “That’s a big concern,” Itscoitz notes. She says getting information on a company’s rate-increase history is “harder to get than information from the CIA.”
“It’s very hard to know if a company will increase rates on you, but I tell people to assume the price will go up, as it does with most things,” she shares. “I tell them that over the next 10 to 15 years, they should assume the premiums will go up 20 to 30 percent. And if they don’t, that’s a bonus.” Itscoitz also advises people to consider buying non-forfeiture benefits. With these benefits, if the insurance becomes too expensive to continue, what you’ve spent so far won’t be worthless; it will pay for some care. If you buy a policy when you’re relatively young, it’s best to pay extra for inflation protection, which generally allows an increase in care costs of 5 percent compounded annually. “This is just common sense,” Itscoitz adds. “If you buy a policy you don’t use for 20 years without inflation protection, you might think you’re buying a daily benefit of $100. By the time you use it, it might be only worth $40 a day due to inflation.”
Although it may seem that you’re throwing money down the drain if you don’t use a policy for 30 years, if ever, many experts say you will still spend less this way than if you buy the insurance in your 60s or 70s. For example, someone who buys a bare bones policy at age 45 would have paid $14,175 in premiums by age 85 while another consumer who bought the same plan at age 79 would spend $26,232 by age 85, according to the American Health Care Association. The downside of buying in middle age is that more flexible policies with better options may become available later. Also, if insurers find the baby boom bulge is costing them more than they anticipated, they may have to raise rates more than they now anticipate.
But most people do purchase this insurance in their 60s, and experts say this may actually be the most sensible time to buy. That’s because the cost is still manageable and people know better what they need in their policies. Instead of inflation protection, it might be a good idea to buy a policy that pays a larger daily benefit amount as a hedge against increased costs, Itscoitz advises.
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Choosing the right carrier
About 195 companies — primarily health and life insurers — sell long-term care policies, which have a wide range of options that cost extra.
The typical policy provides a daily benefit of anywhere from $50 to $400, depending on how much you’re willing to spend. The buyer must choose an “elimination period,” which is akin to a deductible and represents the number of days you pay out of pocket for care before the insurance kicks in. Most people pick from 20 to 100 days.
With many policies, the insured person must be unable to manage two or three “activities of daily living” such as eating, dressing and bathing to begin collecting benefits. Customers choose how long the coverage will last, which usually ranges from two to four years to an unlimited period, depending on how much you’re willing to pay. Because this insurance is complex and difficult to understand, you should get advice from someone who doesn’t sell it, such as a certified financial planner, an eldercare lawyer and the free insurance counseling service known as “SHIP” for State Health Insurance Assistance Program.
It’s crucial to check into the company’s financial stability to determine whether it is likely to stay in business long enough to pay out your benefits. A handful of insurance rating agencies evaluate the companies’ claims histories and financial security. “I always say there are about 120 companies that sell this insurance, but there aren’t 120 companies you’d want to buy it from,” Itscoitz shares. “You want a company to have a track record and that won’t go out of business in five years.”
Alternatives to LTC insurance
If you have a whole life insurance policy – meaning that the policy has cash benefits –you can include a rider to the policy that will let you start drawing part of the death benefit if you need long-term care. This has an advantage over some long-term care policies, which have a waiting period for receiving benefits. It may also be less expensive.
For free counseling, the State Health Insurance Assistance Program or SHIP near you can be found through your local Area Agency on Aging or the Elder Care Locator Service (800/677-1116).