For most seniors, getting older can become very expensive in terms of healthcare costs like in-home nursing care, nursing home care, and other “later-in-life” needs. Regretfully, the insurance products designed to mitigate these expenses have become unaffordable for many of the seniors who need them.
Currently, the average annual costs for long-term care insurance has risen to over $2,700 which represents an increase of about 42 percent since 2005. In a recent survey of people over 50 years old, 55% of the group indicated they would not be able to purchase long-term care insurance because it is simply too expensive.
Why Consider Long-Term Care Insurance?
Long-Term Care insurance was designed to fill in the coverage gaps found in Original Medicare which is the safety net for seniors when they finally get to retire. Unfortunately, over 40% of Americans who are 65 or older typically spend a short period of time in a nursing facility and many others are required to have in-home assistance.
The problem is Medicare provides coverage only for a narrow set of circumstances. Medicaid will provide coverage for nursing care, but they will only do so when the patient has exhausted all of their assets. According to LifePlans, in 2013 American seniors spent over $338 billion on long-term care services and that amount is trending upward every year.
Knowing these costs will be staring seniors in the face and that resources for the out-of-pocket expenses are becoming scarce, it makes good financial sense to mitigate long-term care costs by considering long-term care insurance if found to be affordable.
The Rising Prices of Long-Term Care Insurance
The rising cost of long-term care insurance is not simply due to the rise in costs of health care. There are several other factors in the insurance marketplace that are also affecting the current pricing.
- Providers – As providers are leaving the marketplace because of dwindling margins, the competition has become stifled and prices go up as a result.
- Living Longer – As health care improves in the marketplace it’s only natural that the result is longer lives for seniors. This has motivated providers to reexamine their pricing and benefit packages because clients are spending more time being covered than what was originally determined by underwriters and actuaries.
- Consumer Preference – Consumers today prefer to purchase in-home care and nursing home care together rather than just paying for one or the other.
Who is Buying Long-Term Care Insurance?
Certainly, insurers do extensive research to find out who is attracted to the products they offer and what triggers instigated their purchase. Since there has been a sizeable shift in the purchase of long-term care insurance, it’s important to discuss who is buying it and why.
- The Middle Class – Surveys have found that 82% of long-term care insurance purchases went to buyers who had liquid assets of over $100,000, and their median income level was about $86,000.
- Expectations – Sales reports indicate that recent purchases were made by individuals who anticipated an increase in long-term care insurance prices and wanted to pull the trigger before that took place.
- Income Level – Consumers in the higher income range would typically purchase plans with for a longer duration. Those earning $75,000 or more were likely keeping their plans for about four years, while those earning less were purchasing shorter-term policies. The shorter-term plans can make sense because most nursing home stays last about three or less years.
Purchasing affordable long-term care insurance is now considered a middle-class activity since poorer seniors can qualify for Medicaid if they spend down their assets while the affluent can opt-out because they have the resources available to pay out-of-pocket.
How Can I Reduce My Long-Term Care Insurance Rates?
As with most insurance products, you can reduce your premium if you will accept a larger portion of the risk. When doing this, however, you must first determine what this exposure could cost you and then make certain you have the resources to cover it.
Review and then Reduce Your Inflation Protection
Most Long-Term Care policies have inflation protection available and the typical applicant will select 5% because that is what their agent will recommend. You can easily do some research to see if this should be reduced to 3% which will reduce your premiums. Compare the benefit you would receive that reflects the 5% inflation protection and then compare that with the current cost of care in your area. If a 3% protection will cover your actual cost of care, request a reduction.
Reduce the Length of Your Coverage Term
Having a lifetime coverage term is wonderful but expensive. Surveys suggest that long-term care claims are usually for a period of less than five years, so why pay for longer coverage if it has become unaffordable?
If available, take the Paid-Up Option
In some states, the insurance regulators require the insurance company to offer a paid-up option for policyholders who cancel their long-term care policies. This option allows you to not lose all the money you’ve paid for coverage.
Anytime an applicant is willing to self-insure for a portion of the risk, their insurance costs will typically plummet. When you can set aside a portion of your resources to help cover healthcare costs, the insurer will reduce their premium accordingly. Be careful, however, do not accept a risk that you cannot comfortably afford. Examine your resources, speak with an experienced and reputable agent, and then make a qualified decision on how much skin you’ll put in the game.
Speak with an Expert
The most important thing you can do is speak with an insurance professional who has spent significant time in the long-term care and senior insurance market. Always contact an independent insurance broker because they will have access to multiple carriers and can find the best insurance solution that will fit within your budget. An experienced agent will also be able to offer recommendations that can reduce your premium and suggest several ideas about self-insuring for part of the risk.