What Is the Future of Long-Term Care Insurance?

As seniors and baby boomers find themselves scrambling to fatten up their shrinking nest eggs, many are looking for ways to fund what seems to be inevitable—the need for chronic care.

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Americans are living longer, so debilitating diseases such as Parkinson’s and Alzheimer’s are rising, making long-term care vital.

Paul Hogan, founder of Home Instead Senior Care, says the number of seniors with Parkinson’s is expected to double within 20 years.

“The main thing going on here is that a higher percentage of people are living into their 80s and their 90s,” he says. “If you hit 85, you have a 50-50 chance of having some form of dementia.”

Knowing your options can make facilitating — and paying for — care a bit easier, Hogan says.

When it arrived on the scene a quarter of a century ago, long-term care insurance offered those facing retirement a new option to offset the cost of assistance that many require later in life. From daily tasks such as cooking and cleaning to the all-encompassing care provided in nursing homes or assisted-living facilities, long-term care insurance covers many of the expenses that health insurance, Medicare or Medicaid generally don’t.

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According to the Centers for Medicare and Medicaid Services, about 60 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime. More than 40 percent will need care in a nursing home for some period of time, making long-term care expenses an essential component to consider when planning for retirement.

Though long-term care insurance may sound like a great alternative to saving on your own, the insurance can be extremely costly, experts say, and often doesn’t include an option to compensate loved ones if they're the ones doing the caregiving.

Last Thursday, the Supreme Court, in a landmark ruling, upheld President Barack Obama's health care overhaul, including the controversial requirement that most Americans have health insurance. Experts say the jury's still out on how the ruling could potentially impact senior-care options and long-term care insurance.

Pros vs. Cons: Can You Afford the Premiums?

“The costs of long-term care can be considerable: $10,000 or more a month, depending on whether the individual is in a nursing facility or at home requiring round-the-clock care,” says Eleanor Blayney, president of Directions, a network of financial advisers, in McLean, Va. “Given an extended period of disability or need, these costs could wipe out the resources of many families," says Blayney, a certified financial planner. So long-term care, or LTC, coverage provides a way to cover some or all of those very high expenses for a far lower cost in the form of premiums.

“That said, the major con of LTC insurance is that the premiums are still very high, causing many individuals who might otherwise purchase to decide they can't afford it."

Rosemarie DiSanto, 80, of New Jersey, said she invested in long-term care insurance more than a decade ago. On the advice of a friend, who knew DiSanto’s husband had recently passed away, she purchased the insurance to bolster her financial security.

“It was a good thing I got it when I did,” DiSanto says. “A lot of my friends wish they’d bought it when I did, and now it’s too expensive — especially if you need it for two people.”

DiSanto estimates she spends $2,350 annually for upwards of $100,000 in coverage. She said she was paying less, but recently agreed to a cost-of-living adjustment.

Like 90 percent of those over 65 who participated in a recent AARPstudy, DiSanto says she does not want to end up in a nursing home.

“I want to stay in my own home where I’m much more comfortable. If I have to, I’ll use the money to have someone come in and do the cooking and cleaning and take me to doctors’ appointments and the grocery store. I’m very independent. Plus, the cost of a nursing home is astronomical,” she says.

DiSanto says fear of becoming a burden to her children factored into her decision.

“It’s important to think about: Who’s going to take care of you when you’re older?” she says.

Marion Somers, an elder-care expert, says 41 percent of baby boomers are helping to care for older family members by supplying personal aid, financial assistance, or both. Long-term care insurance can help ease a bit of the fiscal burden, she says.

But for those counting on loved ones to care for them in their homes, Dr. Robert Pokorski, chief medical strategist for The Hartford, says policy holders need to keep in mind that long-term care insurance typically prohibits them from compensating family members who provide care. Further, Pokorski points out most policies require the provider gives you a bill you can submit to your insurance company before you receive reimbursement.

Finding a long-term care insurer isn’t as easy as it used to be either, industry insiders say.

Pokorski says “there’s been a rush for the exits by these companies that provided long-term care insurance” for a number of reasons. He explains that companies didn’t realize that people would live as long as they currently do, nor did they expect interest rates to drop as low as they have.

“The sales of long-term care insurance have shown quite a downward trend,” Pokorski says. “They actually peaked 12 years ago in the year 2000 at 600,000 new individual policies sold that year." New policies have since declined annually until 2011, when new policies edged higher, according to data from the Life Insurance Marketing and Research Association.

“During the same time, they’ve seen a dramatic decrease in the number of companies who are still selling long-term care. The last five years alone, 10 of the top 20 companies have left the market. They just decided they can’t be selling long-term care insurance.”

Blayney agrees. “The long-term care insurance industry is in flux, primarily because many carriers did not price the policies correctly in the first place,” she says. “They assumed far more policies would lapse — the way they do in the life insurance market — than is the case, which meant they had underpriced the premiums.”

Long-term Care Insurance

Industry experts say there's uncertainty about who will sell long-term care and just how high costs may rise.

“It is important for consumers buying these policies — and there are still good reasons to get a long term care coverage — to find a carrier who has been in the business for some time, and for whom long-term care is a major line of business,” Blayney adds.

Long-term Care Rider

Pokorski says the newest solution to the long-term care insurance dilemma is life insurance with a long-term care rider. The optional rider benefit on variable universal life policies allows consumers to use death benefits to help defray costs associated with chronic illnesses. The Hartfordoffers a rider option on a permanent life insurance policy called Life Access.

“Once you qualify for this benefit, you can use it for anything you want,” Pokorski says. “You can pay your family members, neighbors to help. You don’t need to use it for care. You can use it for travel, to fly the grandkids back and forth if you’re too sick to travel. You can use it for rent or groceries.”

Pokorski says hybrid policies have been a huge hit with consumers.

“Of the permanent life insurance policies that we sell, four out of 10 of the policies The Hartford sells has the Life Access rider,” he says. “It really resonates with them because they realize 'most of the care is going to be at home by my family. I need something that will pay my family.’”

The Life Access rider, which adds approximately 10 percent to the cost of a policy, is easier to qualify for than a standalone long-term care policy, Pokorski says. Decline rates for long-term care policies vary by age group with 17 percent declined in the 50-to 59-year-old bracket. Twenty-four percent of those aged 60-69 were turned down, while 45 percent of those aged 70-79 were rejected.

“We take over 90 percent of all who apply. Either there’s a benefit to your heirs or you’re going to use it for chronic care at the end of the day,” Pokorski says. “It’s a better value proposition.”

Who Should Buy and When?

Long-term care isn’t just for seniors. While Blayney recommends shopping for long-term care options before age 60, she says people can become disabled very early in life and require nursing care.

Somers, whose motto is “failure to plan is a plan to fail,” concurs and says if you can obtain a policy through your job, it's definitely worth investigating, no matter how young you are. She adds that because a long-term care policy is priced based on your age and health, if you wait too long, it may be cost-prohibitive or your health may change, and you may not qualify for coverage at all. Somers recommends speaking with a specialist before making any decisions.

When shopping for a policy, rather than thinking in terms of dollars needed, Pokorski advises people to ask, “Will this policy allow me to pay my family?”

Women in the mid-to-late 50s have become the largest demographic purchasing life insurance with a long-term care rider, Pokorski says. A life insurance policy with the Life Access rider with a benefit of $250,000 will cost a 55-year-old nonsmoking woman $2,897.27 annually.

“We’re finding that people are buying it at an earlier age, and that’s a good plan,” he says.

While there is no easy answer to funding the expenses related to long-term care, insurance policies can offer peace of mind as well as an opportunity to protect retirement savings.