New options make
long-term-care policies more attractive
By: Paul Wenske, Columnist
Date of Article: May 11, 2003
If you had to go into a nursing home today in Kansas City, it
would cost you about $147 a day.
And that's just one day. That translates to about $4,410 a month
and $53,655 a year, according to MetLife Mature Market Institute, a
research unit of MetLife Inc.
If you're lucky, your health is good now. But who knows what can
happen? Not everyone is rich or guaranteed an ocean-view room in
their kid's beach home in Florida. That's why many consumers 58 or
older are buying long-term care insurance.
The financial incentive is compelling. The government predicts
overall costs for long-term care will rise from about $123 billion
currently to $207 billion in 2020.
The policies don't come cheap, though. The average annual cost is
somewhere around $1,700. Premiums can vary depending on age, state
and the amount of coverage you need.
But newer options are making policies more flexible and more
attractive to consumers. The biggest change in recent years is that
most policies now cover home care as well as nursing home care.
"Ten years ago, only nursing home care was covered," said
Elizabeth Clemmer, associate director of AARP's public policy
institute in Washington, D.C. "That's hardly what people want now.
Now they want a range of options depending on their circumstances."
If you are contemplating long-term care insurance, here are some
options you may want to check out. Though, as you might expect, any
option will add to the overall cost:
Rate protection: This locks in the cost of your policy for
anywhere from five to 20 years.
"You don't have to worry about the rates ever going up," said
Arvin Pfefer, a Kansas City independent agent who wrote the Consumer
Guide to Long-Term Care Insurance.
Pfefer said you may not need this option if "you can withstand
periodic rate increases." States have lately sought to induce
insurers to keep rates manageable. But rates can increase
Inflation protection: Similar to rate protection, this
option protects you against an inflation rate of usually 5 percent,
compounded annually. It is pricey but can be valuable to younger
policy-holders who don't want inflation to eat up their assets.
Accelerated payments: This allows you to pay off your
policy in, say, five to 10 years, or with just one initial payment.
Again, this will guarantee that your rates won't go up because of
inflation. But it's a gamble, because the option can add 30 percent
or more to the cost.
The option also favors younger consumers, Pfefer said. "This
might make sense if you are 55," Pfefer said. "It won't if you are
Cash benefits: This acts sort of like an indemnity plan. You
don't have to turn in any bills. Instead, once you qualify, you can
receive cash benefits to use as you please -- for instance, to save
up for a larger health-care need. "You have total choice," Clemmer
Weekly or monthly payments: Traditional policies limit
reimbursement to a daily allotment. As a result, the daily allotment
may not cover the full cost of, say, two or three days of home care.
But a weekly or monthly payment may help cover the excess costs.
Employer benefit: This is more of a trend than an option.
But increasingly, employers are offering long-term care insurance to
their workers. In most cases, they are not picking up the tab. But
the value to workers is that they can often qualify more easily and
pay a lower group rate for coverage.
As long-term care insurance becomes more popular, experts caution
that consumers should shop around. Even with more options, it's
often hard to compare policies. They differ widely in such things as
how long you wait for the policy to kick in.
Check the company's industry ratings with A.M. Best Co. or with
Standard & Poor's Insurance Rating Service. You want your
insurer to be around when you need it. Also, make sure the insurer
you choose is licensed in your state. State insurance departments
provide a lot of information on companies, such as how often they
In addition, pay attention to your assets. Don't buy a policy
that you can't afford, warned Clemmer. A rule of thumb is that if
you qualify for Medicaid assistance, you don't make enough money to
invest in long-term care insurance.
But for many people, long-term care insurance is a strong option
that can provide security when your health and ability to care for
yourself have diminished.
And with more options offered to consumers, there are stronger
reasons to check out what's available.
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