What You Need to Know About Long-term Care Insurance

There’s health insurance and there’s life insurance – but neither will do the things you’ve always done for yourself. When you can no longer handle activities like bathing or feeding yourself, walking or doing housework, you need long-term care. Unless you’re quite wealthy (say, assets over $2 million) you’ll probably need insurance to cover that care, even if your family’s willing to help out.

Medicare estimates that nine million Americans needed long-term care in 2012; that number should rise to 12 million by 2020. Although many of us would rather spend that time in our own homes, if you reach age 65, it’s estimated there is a 40% chance you will be placed in nursing homes. Genworth Financial estimates that a year in a Des Moines, Iowa nursing home could cost you $60,773; in NYC it could be $162.425. Long-term care insurance can help you cover that expense.

Basic uncertainties

Your long-term care (LTC) policy is essentially a bet on how much your care will eventually cost, balanced against how early you buy your policy. AARP figures that the average annual premium for people who buy insurance before they’re 56 is $1,831; those who wait until they’re 70-74 are paying $3,421.

If you buy insurance long before you’re likely to need it, you may be in for decades of payments that, as your life changes, you can no longer afford. When you finally need your policy, an obscure clause that you hadn’t noticed could deprive you of any benefits – or the company may have folded on you. But if you wait, you’re taking a chance on coming down with something that disqualifies you from LTC insurance entirely.

Things to watch for

One of the most basic features of an LTC policy is the number of activities of daily living (ADL’s) you can’t handle anymore before your policy kicks in. Mark Zilberman, LCSW, who runs NorthStar Care and Guidance in New York City, has worked with lots of seniors. “You want a policy that requires a minimum of ADL’s,” he says. “Two or fewer is best. Three’s OK. More than that is absurd. And you want coverage that increases with inflation, especially if you get the policy when you’re young. A small or no elimination period is ideal. That’s the initial period during which they don’t pay – kind of like a deductible.”

Zilberman mentioned two other options: “Buy a policy that will restore your benefits after a period of non-use. Say it provides benefits for five years; you need one. After six months without using it they’ll restore you to the full five. And look for a promise that they won’t cut you off for failure to pay – that they’ll reinstate you after you resume paying premiums.”

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