A recent study by the giant accounting firm PwC looked at elder-care insurance claims in an effort to gauge the enormous cost of long-term care (LTC). Bottom line: The average lifetime cost is $172,000. For the top quartile of policyholders who spent the most on long-term care, the average was $240,000 – nearly a quarter of a million dollars. (See previous blog post for more on the sky-high cost of elder care.)
It’s no wonder rates for long-term-care insurance have risen sharply in recent years. Does an LTC policy make sense for you or a loved-one? Do the upfront costs justify the potential benefits?
To get answers, I contacted Toby Stark, president of Stark Associates, an insurance agency in Tinton Falls. Stark has been in the insurance business for nine years, offering a range of coverages including LTC.
Stark graciously agreed to answer my questions about LTC insurance:
Q: What kinds of services are covered by long-term care (LTC) insurance?
A: Services include assistance with your activities of daily living (ADL) at home. Typically, an aide will visit your home (2-3 hours per visit) to help with dressing, bathing, preparing meals and similar household chores. Alternatively, insurance will cover a semi-private room in a facility.
Q: There have been news reports that the cost of LTC insurance has risen dramatically in recent years. Why is that?
A: The reports are accurate. Many carriers have left the market. Originally, rates were very competitive. As with any insurance policy, when utilization increases, the insurance carrier must increase the cost to either the current or new policy owners, leading to more expensive plans. Meanwhile, the cost of care has increased very rapidly, resulting in coverage that could be out of reach for the consumer. Home healthcare today, full time, could cost $75,000 per year. A semi-private room could cost up to $325,000 per year.
Q: What are the main factors insurers consider in pricing long-term care policies?
A: If you are looking to enroll in a traditional LTC policy, your current health plays a big part in being covered. Also, the carrier will make sure your mind is sharp and there are no signs of dementia. Even after that, only about 50 percent of those who apply actually get a policy. Life insurance with an LTC rider has more liberal underwriting.
Q: Are there flexible policies that cover one or both spouses in a household?
A: Generally, the policies are flexible. They are built for a couple to enroll, and offer as much as a 40% discount if both enroll together.
Q: Roughly how much might a 60-year-old woman in reasonably good health expect to pay for LTC insurance? How about an 80-year-old?
A: Depending on the individual, a 60-year-old could expect to pay $3,000 to $4,000 a year. An 80-year-old could expect to pay $12,000 a year or more.
Q: What can be done to keep costs down?
A: There are ways to keep costs down. I tell my clients only purchase what you can afford. Do not buy a policy that covers all your cost of care. Take out a policy that covers a good amount of your LTC bill, but not all of it.
Q: Are there policies that offer fixed premiums similar to term-life insurance? Or do the premiums increase every year?
A: Traditional LTC policies can change to increase costs if the carrier decides to do so. Life insurance with an LTC rider would be a fixed cost with no fluctuation.
Q: At what age would you recommend people consider purchasing long-term care insurance?
A: Ideally, the purchaser should be 55-62 years of age. Family history is a powerful tool, but there is no such thing as “family future.” If you have money and assets and would like to protect them, the smart choice is to buy coverage in that age range. Don’t wait until it is unaffordable and you are uninsurable. If not protected, you can kiss good-bye any savings you had.
For more information, Stark can be reached through his company’s website at http://www.stark-associates.com/.
Written by T.J. Foderaro