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EDITOR'S NOTE: This article was originally published in the April 2008 issue of Kiplinger's Retirement Report. To subscribe, click here.
Harry Thalhimer, 54, of Richmond had a big surprise when he recently searched for long-term-care insurance. "The policies were 30% to 40% cheaper than they were four years ago," he says.
Well, sort of. Four years ago, most policies on the market were fully loaded -- lifetime coverage, high daily benefits, short deductible periods and 5% compound inflation protection. Annual premiums could run $5,000 a year for a man of Thalhimer's age.
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You can still buy those fancy policies and pay dearly for the privilege. But Harry and his wife, Marcia, also 54, have opted to forgo many of the bells and whistles. They bought a policy that costs each spouse $2,111 a year. The two share the policy, which offers a total of six years of coverage. The insurance provides $7,500 in monthly benefits that rise every year with the consumer price index. "It was the right amount of coverage at the right cost," Thalhimer says.
If you haven't shopped for long-term-care insurance for a while, it's time to take another look. The major insurers are now offering slimmed-down versions of their standard policies. They're targeting baby-boomers seeking to protect their retirement savings from potentially huge long-term-care costs -- a private room in a nursing home averages $77,000 a year -- but who don't want to pay big premiums for expansive coverage they may never use.
"It's better to have something than nothing," says Jesse Slome, executive director of the American Association for Long-Term Care Insurance, which represents insurers and agents.
Rather than pushing lifetime benefits, insurers are touting benefit periods of three years, which is the average length of a nursing-home stay. Shared-care policies, like the one the Thalhimers have, cost less than buying two separate policies. And annually adjusted inflation protection tied to the CPI is cheaper than the 5% hike because the CPI has only risen 2% to 4% a year for several years. "Companies have been trying to strip things out of their policies to address the sticker-shock issue," says Dennis O'Brien, senior vice-president of New York Life.
Note, there are trade-offs when you go with the leaner models. If your family has a history of Alzheimer's disease, for example, you may need more years of benefits.
Innovations in Cutting Costs
The Thalhimers bought a John Hancock Leading Edge policy, which costs about 30% less than the company's standard policy. All Leading Edge policies have a 100-day waiting period before benefits kick in. And buyers can't buy lifetime benefits. The benefit-period choices are three years, five years, and five years with an additional $1 million in coverage if you still need benefits after those five years.
John Hancock is also one of several companies that offers a shared-benefit policy, which could provide several years of coverage to each spouse or a lot of care to one. "The odds of both of you needing care are not that great," says Thalhimer.
But John Hancock and other insurers have reaped the biggest cost savings by changing the way they increase the value of the daily benefit to keep up with inflation. Benefits in the stripped-down policies rise with the CPI. Be aware that nursing-home costs usually increase at a faster pace than overall consumer prices. By the time you need care, you could face a shortfall in coverage. However, this protection could be enough if you opt for home care, which has risen about 2% a year.
With John Hancock's Leading Edge, you get the inflation protection upfront and the premiums stay the same. Other insurers allow policyholders to start off with lower premiums, but they have to pay extra every year or so to increase their benefits to keep up with inflation. Although a policyholder does not have to undergo medical underwriting again, in most cases the cost of the extra protection is based on the buyer's age when the new coverage is purchased. That means the premiums are boosted an extra notch for your age as well as by the increase in the CPI.
To reduce a buyer's cost, New York Life offers a policy that lets you buy additional CPI-based protection that is based on your age when you first bought the policy. The premium will rise only by the size of the CPI increases since you bought the policy.
POSTED BY: Michael Robinson (July 28, 2008 07:47 PM)
Informing clients about LTC insurance is one of the best things I have done in my life. I have helped scores of people get the peace of mind that they wanted to have so as not to become a burden on their family in their later life. Medicare and Social Security are not going to be of much help and Medicaid is for the very poor who can not afford to pay. If you have assets you must 1st. "spend down" to a poverty level before you can become eligible...
POSTED BY: Dane (July 28, 2008 08:01 PM)
There are so many ways to save on your Long-Term Care insurance premiums and dealing with the top carriers is of utmost importance. There are substantial discounts for excellent health as well as martial or partner discounts. Seek the counsel of a Long-Term Care Specialist. Doing this alone will save you many hours of research and still not have the whole picture...It is important to obtain this type of insurance when you are younger and in great health.
POSTED BY: David Shulman (July 29, 2008 07:43 AM)
A good LTC specialist can custom tailor insurance plans for their clients comfort level. We illustrate "basic" "significant" and "comprehensive" plans so that a client can choose how much of the risk they want to transfer to the insurance company. Most people are surprised by the range of premiums and how affordable coverage can be...
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