What Should You Know About Long-Term Care Insurance?

As the average life expectancy of Americans continues to increase, many people are finding that they or their loved ones require support services to meet their needs as they age.  It is important to consider insuring against the financial risks associated with such assistance.  You likely already insure major assets that are important to you, such as your home and automobile; depending on your situation, protecting your portfolio from the cost of long-term care may be equally important.

Long-term care services range from relatively minor assistance such as hiring a Home Health Aide, to more extreme care such as a full-time private room in a nursing facility.  Regardless of the level of assistance, there is a cost associated with skilled care, and the expenses can quickly add up.  In Massachusetts, for example, the average cost of a private room in a nursing home is in excess of $400 per day, and as of May 2014 the average length of a nursing home stay was 835 days.  Based on these statistics, families can expect to pay upwards of $330,000 in nursing home fees if such care is necessary to support a loved one.  Given the recent data showing the likelihood of care being required during a person’s lifetime, it makes sense to consider the options available to help manage long-term care expenses.  According to a 2013 National Center for Health Statistics survey, approximately 70% of individuals over age 65 will require some type of long-term care services in their lifetime.

Policy Types – Traditional vs. Hybrid

Before deciding on purchasing a long-term care policy, it is critical to understand what you are buying.  Many insurance companies offer both traditional long-term care policies, designed to cover expenses associated with long-term care and support, as well as hybrid policies that include a long-term care component and an element of life insurance.  Not only are there differences in the coverage offered between the two types of policies, but the premiums for the consumer also vary.

Unlike most traditional policies, hybrid policies tend to charge upfront premiums to their policy holders, which can be upwards of $100,000. These policies tend to cater to high-net-worth clients as a result.

Premium Increases

It is also important to consider the cost of the policy premium, not only now, but in the future.  Many insurance companies have the right to raise premiums to keep up with the increasing number of claims and cost of care, and companies often exercise their right to do so.  While there are measures in place to restrict the magnitude of premium increases, periodic incremental increases can, over time,   greatly impact the annual premium that a policy holder pays.  Historical premium increases are available for your review, and understanding the track record of each insurance company may be a wise starting point in your pursuit of a long-term care policy.

Insurance Company Selection

In addition to analyzing the type of coverage and weighing the difference in premiums, it is important to buy long-term care policies from established and steady insurance companies.  Independent rating agencies, such as Moody’s and Standard & Poor’s, offer objective ratings that can be extremely helpful in narrowing down your search for a reasonable long-term care policy.

The landscape of the long-term care industry is constantly changing to adapt to the trends in health care and the demands of consumers.  The varying policy types, wide range of annual premiums, and long list of insurance companies can make it very difficult to select the most appropriate policy.  If you are interested in learning more about the long-term care industry or if you have specific questions on policies, the guidance of a financial counselor who can discuss your needs and work with an insurance provider to identify the right solution can prove to be very helpful.