Jessie Lum, 96, has dementia and currently lives in an assisted-living facility at a cost of $3,500 a month. Lum's daughter Marian Bayham purchased Lum's long-term care insurance 15 years ago. It now covers 85 percent of her living costs.

Jessie Lum, 96, has dementia and currently lives in an assisted-living facility at a cost of $3,500 a month. Lum’s daughter Marian Bayham purchased Lum’s long-term care insurance 15 years ago. It now covers 85 percent of her living costs.

Personal Guarantee

Long-term insurance today, long-term assurance tomorrow

Back Article Aug 31, 2010 By Bill Romanelli

When 52-year-old Rosey Ramsey had a stroke in August 2002 she was one of the lucky ones.    

She recovered quickly, and though she couldn’t return to work, she didn’t require long-term medical care and was able to make ends meet. Others she knows were not so fortunate.

“I had a friend who was earning $200,000 a year when she had her stroke,” Ramsey says. “Hers became a horror story. It was so sad when she had to sell her house.”

Last May, Comstock’s addressed the importance of long-term disability insurance, but while that insurance essentially replaces income, it does not cover costs associated with long-term health care needs. While people like Ramsey are able to return to their independence, millions of others — because of stroke, injury, illness or age — require some level of medical care for the rest of their lives. 

According to LTC Tree, a nationwide long-term care insurance brokerage, 75 percent of people age 65 and older need long-term care, and by 2020 one in three U.S. workers will need to provide some form of long-term care for their parents.

In the Sacramento region long-term care costs can range from $23 an hour for a home health aide to $206 a day for a private room in a nursing home, according to the American Association for Long-Term Care Insurance. That might seem reasonable, but according to a Harvard University study, more than 50 percent of all people entering a long-term care situation are penniless within one year.

With those numbers in mind, it’s surprising that only about half of the people eligible to get long-term care insurance do so.

“People just don’t believe, or don’t want to believe, they’re going to have a chronic disease or dementia,” says Kay First, a resources specialist for Eskaton’s The Senior Connection and agent for Genworth Financial. “They just don’t think they need this kind of coverage.”

Part of that thinking comes from the notion that long-term care is only for people in their 80s, but that misses the critical point: Like any other insurance, the key is to get it before you need it.

“The reality is you could need long-term care at any age,” says Jesse Slome, AALTCI’s executive director. “The older you get the more likely you’ll have a long-term care need and the less likely you’ll meet the health requirements.”

That speaks to something Slome says most people don’t know about long-term care insurance: You have to have health to qualify. Unlike life insurers, who consider what might kill you, long-term care underwriters look at what ailments or diseases you could live with for several years. If there are enough of those, you won’t get covered.

That makes the 40s and early 50s the best years to seriously investigate long-term care coverage. From there it’s a matter of deciding what kind of coverage is needed, and there are as many kinds of plans as there are people who need them. It’s best to work with a professional who knows what questions to ask and can build a policy catered to specific needs, but even going in to that conversation there are several considerations.

“Don’t just look for a policy you can afford today while you’re still working,” says Marian Bayham, a long-term care insurance agent with Bayham and Associates in Sacramento. “You have to think about what kind of plan or premium payment will be affordable after you retire.”

In terms of the type and quantity of coverage to obtain, most experts recommend thinking about how big a “pool of dollars” will ensure you’ll have as many options available as possible. This certainly involves a lot of crystal balling, but there are resources to help navigate through the guesswork. The AALTCI website (aaltci.org) has an online questionnaire that can estimate the cost of your desired level of protection. Key considerations would be plans that grow with inflation and minimize the impacts of any waiting period before benefits kick in.

A case in point on inflation: A plan worth $300,000 today that does not adjust may not even provide a year’s worth of coverage by 2030, especially with most experts saying health care costs go up 5 to 8 percent annually.

Experts also suggest some kind of “zero-day home care” benefit, which covers the costs of in-home care while the waiting period for full coverage proceeds. The advantage is that skilled nursing can be provided in home without the substantial out-of-pocket costs associated with immediate admission to a facility.

Next there’s choosing a company. Part of that decision is relatively easy as rates for the same individual can vary widely from one company to another. “Every company has its sweet spot that it caters to in the market,” Slome says. “Company A may be much cheaper for a 56-year-old single woman but much more expensive for a 52-year-old married man.”

There are also numerous discounts available for things such as adding a spouse, good health, adding a deductible and paying annually instead of monthly. Don’t overlook these, and if a company doesn’t mention them be sure to ask. The savings can be substantial — higher than 20 percent in some cases.

Choosing a company also means finding one that will still be around in 20 years when you need the coverage. A good guide, again, is the AALTCI website, which provides a rating of long-term care insurance providers.

The state of California has additional resources available through the California Partnership for Long-Term Care, a cooperative effort between the Department of Health Care Services and insurance providers. The partnership provides education and some standardized, high-quality policies to take some of the guesswork out of choosing long-term care coverage. More information on these “partnership policies” is available on the DHCS website at dhcs.ca.gov.

All said and done, the ultimate goal is to build a customized policy that provides the right balance of coverage with a solid company for a price you can afford. The true range for an annual premium could be as low as $800 per year or as high as $9,000 per year, depending on a host of variables. Realistically, an average rate for someone in their 40s could range from $1,500 to $2,500 per year, whereas someone in their late 60s or early 70s could see a range from $3,000 to $4,000 annually. It all depends on the details of the customized policy package. 

“Take the time to do your research and shop around,” Bayham says. “It’s very difficult to change long-term care insurance coverage once a policy is locked in, and it will inevitably cost you more to do so. Remember that this is insurance that’s going to meet all your needs and take a huge burden off of your family. Be certain the policy you get is the right one.”

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