Question: What’s the annual premium for a private insurance policy that covers nursing-home and other long-term care expenses for a 65-year-old? (A) $2,000; (B) $1,000; (C) $500.
Answer: All of the above.
And therein lies the challenge for people considering long-term-care insurance.
Insurance companies say interest in these policies is soaring as growing numbers of seniors and Baby Boomers worry about how to protect their assets from potentially devastating nursing-home costs in their frail years. New federal tax breaks for the policies, which took effect Jan. 1, also threw a spotlight on them.
Lewis J. Altfest, a fee-only financial planner in New York, says his phone is ringing as never before with inquiries about the policies, which can be purchased by an individual and often also for spouses, parents and grandparents. And seniors like Helen Darnow of Valhalla, N.Y., are thinking seriously about taking the plunge.
“If I’m in a nursing home for years and years, God forbid, this is going to eat up a lot of savings,” says Darnow, 67, whose husband died last year. “I want to save everything I can for my children.”
But the question facing Darnow and others like her is just how much they should pay for the protection promised by long-term care policies.
Because the policies have many variable features, agents who sell them usually can come up with a wide range of premium quotes, and often hit on one that fits a buyer’s budget. But if people don’t understand what they’re getting and what they’re giving up, they could end up buying a policy that’s anything but a bargain, consumer advocates say.
“If a salesperson knows what you can spend, then he or she may end up selling you a policy that’s not appropriate,” says Priscilla Itscoitz, manager of the health-insurance counseling program for the United Seniors Health Cooperative, a consumer organization in Washington, D.C.
If you are considering a policy, keep in mind that although cheaper isn’t always better, there are some features you can easily do without.
– Benefits. The amount a policy would pay to cover daily nursing-home costs has a big impact on premiums. Many policies offer a daily nursing-home benefit ranging from $50 to $200, with a $200-benefit policy often quadruple the price of a $50-benefit plan. Covering about two-thirds to three-quarters of the daily rate generally is a good rule of thumb, Itscoitz says.
Remember that costs vary. While the national average runs about $105 a day, the average daily rate in Arkansas is only about $62, according to the American Health Care Association, a nursing-home trade group. The average rate for homes in New York City runs about $200 a day, the association says.
Most policies also cover home health care. But depending on the type of coverage you have and the care you get, a policy might only pay for a few hours a day or a limited number of visits per week. So these are often useful only to people who have a spouse or other family member to provide the bulk of care.
If you have limited dollars and are a single person without a network of people to take care of you, you are probably better off focusing on nursing-home benefits rather than home care, says Bonnie Burns, a consultant to California’s senior health counseling program.
– Length of coverage. To protect against the potentially backbreaking cost of a lengthy nursing-home stay, many people buy six-year, 10-year or even lifetime coverage. But this often drives up premiums considerably. For example, a 65-year-old with an individual policy from John Hancock Mutual Life Insurance Co. would pay about 50 percent more for a policy with six years of coverage than for one with a two-year benefit period.
Many people spend only a few months in a nursing home, so most should feel comfortable with a policy providing from one or two to five years of coverage, consumer advocates say. People with a family history of Alzheimer’s disease or similarly drawn-out conditions, however, may want to consider a longer benefit period, Itscoitz says.
– Elimination period. Many policies offer so-called elimination or deductible periods of 20 to 180 days before the policy starts to pay. Many people choose relatively long elimination periods, around 100 days, to lower premium costs. It’s an effective strategy–as long as you can afford to pay on your own for the uncovered period.
If you don’t think you can fund even a short stay, you are often better off shortening the elimination period and, if necessary, reducing the length of the benefit period or saving money in other areas, consumer advocates say.
– Inflation protection. Most people don’t choose benefits that increase annually in line with inflation, because inflation-indexing is an expensive option.
Yet for most people younger than 75, inflation protection is absolutely essential, consumer advocates say. “Better to buy a more limited policy in terms of benefits, either shorter duration or less home care that’s protected against inflation, than stretching for a policy that’s not protected,” Burns says.
– Buyer’s age. A person’s age when he or she buys long-term-care insurance often is the biggest influence on the price. For example, one popular individual policy from John Hancock would have annual premiums of about $510 for a 55-year-old, $990 for a 65-year-old and $2,830 for a 75-year-old. Many companies offer a discount to married couples.
Still, says Daniel G. Fish, an elder-law attorney in New York, the best time for many people to buy is in their mid-60s–before premiums become exorbitant or coverage is denied because of health problems, but closer to the point where a nursing home may not be decades away.
– New tax breaks. There has been a lot of hoopla about tax deductions for long-term-care premiums. But many people won’t be able to take advantage of them because their total itemized medical expenses, including long-term-care premiums, won’t exceed the required minimum of 7.5 percent of adjusted gross income, says Carolyn Boyer, Washington counsel for the Health Insurance Association of America.
