Long-term Limits?

Updated on April 15, 2014

rick-007-Edit-2In an increasingly complex marketplace, the rules are changing for long-term care insurance

By Ric Runestad
Owner & Principal, Runestad Financial Services

To buy, or not to buy—that is the long-term care insurance question for many Baby Boomers. At a time when long-term care is becoming increasingly expensive, seniors are also faced with rising premiums and a shifting insurance marketplace, making the decision more complicated than ever before.

Statistics show that only a relatively small number of Americans in their 50s and 60s today have bought a long-term care insurance policy. That is despite the fact that many of them have experienced the financial, mental, and emotional difficulty of long-term care with their parents or other family members.

Statistics show that 70 percent of people who live past age 65 will need long-term care, and the costs can be staggering. According to Genworth Financial, a year in a nursing home runs about $80,000 on average nationwide, and can be much higher in some areas. Furthermore, those costs continue to rise. If the costs go up just 5% a year, a 60 year-old would be looking at paying more than $300,000 at age 88 if she had to enter a nursing home. These kinds of outlays would wipe out many Boomers’ best-laid savings plans.

Even with these significant costs for care, why have so few Boomers secured LTC insurance? The reasons often come down to cost or health. A policy can run as much as $3,500 amount for a 60 year old couple to get $274,000 amount in coverage. For some people, that is either more than they are able to dedicate, or simply too much money to stomach for something they hope they will never need.

For others, it is a matter of health. Insurance companies have become very restrictive over the last several years in issuing policies. If you have any significant health issues it may not be an option to buy a long-term care insurance policy.

Despite these challenges, there are more options for long-term care insurance than there have been in the past, and these are opening the market to seniors who may not have been able to afford traditional coverage.

A variety of hybrid options on the market provide quality protection and are both more flexible and more affordable. One category offers plans where the money that you have invested into the program can be used as a death benefit if the policy holder passes away before they require long-term care.

A return-of-premium policy is also a viable option for some—especially if you are younger than 55. There are variety of ways to structure these policies, but the two primary categories are a full return-of-premium policy—where your family receives the full return of premium when you pass away, regardless of whether or not you have made a claim (provided that you survive longer than the stated term on the policy)—and a partial return-of-premium policy, which kicks in after a shorter period of time and returns the funds you have invested minus any claims that have been made. Of the two, the partial option is much less expensive.

For those who are effectively uninsurable because of age or medical reasons, additional products are available that provide an income stream designed to ramp up (sometimes as much as doubling) in the event that long-term care is needed. Some long-term fixed annuities, which require no health qualification, may also pay an increased benefit in the event that the policy holder needs long-term care.

So who should get a long-term care insurance policy? I advise my clients that it makes sense if it will not affect your lifestyle. In other words, if you have $500,000 in savings, and you can set $100,000 aside and use the interest to pay the premiums, you probably should get a policy. If having a policy truly means you will have to adjust your lifestyle in retirement, you most likely should pass on getting coverage.

Regardless, many more people should have long-term care insurance than currently do, and, if you have been thinking about investigating getting coverage, now is the time. It’s not for everyone, but for a great many people it is the best protection they will ever have.

Ric Runestad is a Fort Wayne, Indiana-based retirement income specialist, with significant experience with annuities as well as long-term care and life insurance. His firm, Runestad Financial Services, serves clients in multiple states to ensure their financial security in retirement.


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