A Long-term Care Insurance Policy: Five Things You Need To Know Before You Buy

Of all the key healthcare categories, none are projected to grow faster over the next few decades than long-term healthcare. The long-term care market is projected to grow ever more expensive, just as the first wave of Baby Boomers—at 77 million strong—begin reaching retirement age.

The U.S. Government projects long-term care insurance policy costs to rise by 5% in 2011, and then at a faster rate for the remainder of the decade.

Long-Term Care Costs Expected to Increase

Specific costs linked to long-term healthcare for seniors are particularly onerous. According to MetLife’s Market Survey Of Long-Term Costs, the breakdown goes like this:

  • Private room nursing home rates rose 4.6% from 2009 to 2010 to $229 per day or $83,585 per year.
  • Assisted living costs rose 5.2% to $3,293 per month or about $39,000 annually.
  • Both costs are accelerating at a faster pace than from 2008 to 2009, when growth rates averaged 3.3% for nursing home and assisted living care.
  • The per-hour cost of a home health aide is now $21 per hour.
  • Adult day care services now cost $67 per day.

“As the population ages, there are more and more people among us who will need long-term care,” said Sandra Timmermann, EdD, Director of the MetLife Mature Market Institute.

“While families continue to provide the lion’s share of care, paid care is commonly part of the equation, and the costs can derail even the best financial plan. There is very good reason for individuals and families to look into savings plans, annuities and long-term care insurance to hedge the possibilities.”

How To Choose a Long-Term Care Insurance Policy

Consequently, it’s not a matter of if you buy a long-term care insurance policy, but when. To aid in the buying process, here is a list of five things you should factor in before venturing into the long-term care insurance market:

  • Consider buying insurance through your employer – Your best bet for avoiding a huge price tag on any long-term care insurance policy may be to buy it through your company. Typically, employers, especially larger ones, get great deals from insurers, as they buy long-term care insurance “in bulk.” In other words, with your employer, you get leverage.
  • Pay for experience – When you finally choose an insurance provider, don’t opt for one with less than 10 years of experience. Why? Usually, the more seasoned the insurer, the better the policy (and the customer service).
  • Kick some tires – Buying a long-term care insurance policy is like buying a new car. You really need to do your due diligence. Start by checking the insurance company’s “quality” rating at Moodys.com.
  • Check the fine print – Insurance companies are no different than any other business. They love to hide little “secrets” in the fine print. Almost always, those secrets favor the insurer and not you. It’s a tedious process to be sure, but you need to read the fine print on things like benefit payouts and criteria on pre-existing conditions. If you’re confused, ask an insurance agent for help.
  • Check the clock – Most long-term care policies only pay out for a fixed period of time, three or five years, for example. Before you buy, know if there are any potential “windows” that are closing.

A long-term care insurance policy can help make sure you live a comfortable lifestyle well into old age, but it’s important to do your research before you buy as not all policies are equal.

Written by senior finance expert Brian O’Connell.