Have You Considered Long-Term Care Insurance?

You’ve worked hard to build savings to carry you through retirement. Yet the best-laid plans can go awry.

Sometimes an illness or disability may occur that requires personal care services—assistance with basic living activities such as dressing or walking. Government statistics indicate that 70% of Americans age 65 or older will require some type of long-term care service.¹

The need for these services can throw a wrench in any retirement plan. Should you consider long-term care insurance now?

• Why Consider Long-Term Care Insurance?
• What Does Long-Term Care Cost?
• How Much Is Insurance?
• Contain Insurance Costs
• More Resources

Although T. Rowe Price does not sell this insurance, we believe it is important to evaluate your personal circumstances and whether you should secure protection against this potentially serious financial risk. Long-term care is not covered by medical insurance. Generally, neither Medicare nor Medigap policies pay for this care either. Medicaid benefits are generally only available to the indigent. In many states, you will not be eligible for Medicaid if you have assets greater than $2,000.²

Buy peace of mind. Many people do not wish to be a burden on their family. Purchasing a long-term care policy removes worries your family may have about your possible future needs.

Limit risk exposure. Long-term care insurance can be a cost-effective way to protect your assets against potentially catastrophic expenses. Consider that homeowners insure their homes against the risk of fire, yet the cost to repair limited damage might only be $100,000. Long-term care costs can run much higher.

Get care when you need it. This insurance usually kicks in if you become unable to perform, without assistance, basic activities such as eating and bathing. It could be the result of a cognitive decline or physical limitations.

Costs for long-term care are surprisingly significant. Currently, a private room in a nursing home costs $209 a day on average, and a one-bedroom unit in an assisted living facility costs $3,008 a month.³ Prices vary, depending on the level of care required or extra amenities you want. Beware of inflation. A new study reveals that nursing home expenses rose nearly 30% over the past five years, and the cost of care in an assisted living facility increased 13% in the past two years.⁴

Let’s say you wish to buy a policy with a daily benefit amount of $150 in a facility or $112 for home care; five years of benefits; an automatic inflation rider; and a 30-day elimination period—the initial period of time during which you are responsible for payments. Insurance premiums for healthy 40 year olds may run $1,080 annually.⁵ For 55 year olds, the same plan costs $1,908; for 65 year olds, it’s $2,976. Naturally, costs will vary, depending on your health status, the insurance provider, and the benefits you desire.

Insurance premiums can run high if you buy a policy with lots of bells and whistles. Try curbing costs using the following strategies:

It’s best to buy this insurance when you’re young and healthy because premiums will be smaller. If you wait, you risk developing medical conditions that may render you ineligible for this insurance.

This is the time during which you will have to pay out-of-pocket expenses before your insurance goes into effect. A longer elimination period results in lower premiums.

Some policies offer married couples joint coverage. Whatever benefits one spouse does not use can be applied to the other spouse. This may be less costly and more efficient, since you likely can’t guess which spouse may ultimately need care.

Determine what nursing home and home care costs are in your area or in the city to which you plan to move, and choose a daily benefit amount that corresponds with an affordable premium. Choosing a benefit period—the amount of time the benefits would be in effect—will involve trade-offs. The average stay at a nursing home today is less than four years, but advances in medicine could increase that number dramatically. However, you can save up to 60% on premium costs if you limit your benefit period to five years rather than buying lifetime benefits. Be sure to consider buying inflation protection because prices may increase steeply over time.

Contain insurance premium costs by limiting the number, range, and type of services that your policy will cover.

Before buying long-term care insurance, learn as much as you can so that you can make apples-to-apples comparisons of policies. Be sure to choose an insurance company with a strong track record. Identify the major providers, and investigate their history of honoring claims. You don’t want to buy insurance from a company that challenges every claim or goes out of business. Below are links that may assist you in your research.