Long-term care insurance isn’t for everybody, but it can be useful for people who are interested in preserving their estate for their heirs and for families determined to provide high-quality home care or a superior nursing home for aging loved ones.
In pursuing those goals, one of the major requirements is to make sure the policy has adequate protection against rising health care costs.
Marguerita Cheng, a certified financial planner who runs Blue Ocean Global Wealth in Rockville, Md., said she was glad she recommended long-term care insurance for her father, who died this year at the age of 82.
“He had bought a policy when he was 68 with a $125 daily benefit with 5 percent simple inflation protection,” Ms. Cheng said. Last year, his daily care cost $256 but almost all of it was covered because the benefit had increased to $219.75.
There are no concrete guidelines on who should buy long-term care insurance or how much they should pay. And even those working with impartial advisers who recommend policies are often chary of the insurance, mostly because it costs more if you wait to buy or if you are in poor health.
Keith Singer, a certified financial planner with Singer Wealth Management in Boca Raton, Fla., said he recommends that clients with more than $500,000 in investable assets consider the policies. “Most of my clients have them,” Mr. Singer says. “They buy them in their 50s or early 60s. But the longer you wait, the more expensive the policies become.”
There are also hybrid policies that combine long-term care coverage with annuities and life insurance. Although these insurance contracts are more expensive, “the upside is that both hybrids can provide growth, future income and in the case of a life insurance hybrid, a tax-free death benefit,” Mr. Singer said. “So there’s some additional value in retirement and estate planning besides the long-term care benefit.”
Buying these policies, however, involves careful vetting because of the myriad benefits and pricing options they offer. “There is no one-size-fits-all policy,” said Theresa Rosen of Prudence Financial in Sudbury, Mass.
Here’s one example. A 60-year-old married man wanting a $6,000-a-month maximum benefit or $216,000 in total coverage, will pay $2,114 for the first year under a Genworth policy quoted by Ms. Cheng. The premium may increase during the life of the policy and would be considerably higher for someone who applied later in life.
After a 90-day “elimination” period (often partly covered by Medicare for people whose need for extra care is hastened by a stroke or other medical emergency), the policy covers all assisted living, community and home care.
Its benefits, however, only increase at a 3 percent annual rate, which is less than the typical increase in nursing home costs. And to qualify for the discounted rate, not only must the applicant be in reasonably good health, but he must apply with his spouse or partner.
Indeed, one crucial consideration in determining the cost is medical history. You will pay more if your health is less than ideal. A “standard” rating for this policy could result in a premium perhaps 20 percent higher or more.
Moreover, keep in mind that, unlike health insurance in the Affordable Care Act era, companies can deny long-term care coverage based on your medical history. If you have had maladies such as diabetes, Parkinson’s disease or a stroke, you may not qualify at all, according to the American Association for Long Term Care Insurance.
Ms. Cheng recommends that a potential buyer work with an adviser to drill down into both the policy and insurer before purchase. You want an insurance company that is going to stay in the business, which means making sure they are experienced and financially sound. Dozens of companies have left the business because they were not making money and underestimated the number of claims.
You also want to consider how the insurance meshes with your overall financial plan.
“Many times folks look at the cost of care in their area and then decide that it’s too expensive to even consider long-term care insurance,” Ms. Cheng said. “Looking at the cost of care is a great starting point, but it’s more prudent to adopt a holistic and integrated approach, then design a policy around your needs.”
Deciding to buy a policy may require hours of discussion with professional advisers before you make a move. Among the questions: Do you need to insure for things like adult day care, home care or assisted living, or will you have the resources to pay for these services from your savings? Have you done estate planning to determine how much you plan to leave behind?
In any such discussion, many people should explore the consequences of forgoing long-term care insurance. There are a number of alternatives to expensive nursing homes, including home-care setups that include in-home medical care, homemaking and health aides.
But with the exception of skilled medical care, which is mostly covered by Medicare, all of the other services are paid for out of pocket. And they aren’t necessarily cheaper. A home health aide alone could cost from $26,000 to nearly $60,000 a year, depending on location, a survey by Genworth, one of the largest insurers, found.
Considering long-term care needs is fraught with emotion for many families, but it is a discussion worth having, even if it means taking a break from year-end holidays. Adult children may become caregivers or be responsible for managing future care, so it’s important to involve them. They may even be able help fund long-term care insurance premiums.
“Some of my clients’ children are worried about college, retirement and making sure that their parents are O.K. in retirement,” Ms. Cheng adds. “In these situations, the kids may contribute $100 to $200” each toward their parents’ long-term care premiums.
Correction: January 6, 2016
Because of an editing error, an article on the Personal Finance pages on Dec. 26, about long-term care insurance, described premium increases for a Genworth policy incorrectly. While premiums may rise during the life of the policy, they do not increase annually in line with health care inflation.