Based on my recent long-term care insurance post, many people are thinking about the same issues I am -- namely, what to do about it.
Shortly after I posted that piece, I ran into this article from Kiplinger's that IMO has some decent advice regarding long-term care insurance. The highlights of their advice:
Instead of buying enough long-term-care insurance to cover the full risk, you can keep the premiums more manageable by making some trade-offs.
Rather than buying a policy that provides lifetime benefits, go with a plan that offers benefits anywhere from three to five years. Advisers also prefer "shared benefit" policies for married couples. A three-year shared-benefit policy provides a pool of six years of coverage to divvy up between spouses. If you need five years of care and your spouse needs one, you're both covered. Such a policy costs about 15% more than two separate policies with three-year benefit periods.
Because you may wait 20 or more years to tap your policy, your daily benefit should keep up with rising costs. The 5% compound inflation protection is the gold standard, but some companies are offering cheaper policies that boost benefits by 3% a year. The 3% annual boost has kept up with general inflation recently, although the cost of care often rises faster than general inflation.
It's important to work with an agent who deals with many insurers, because the price differences can be huge.
Ryan says the major long-term-care insurance companies include Genworth, John Hancock, Mutual of Omaha, MassMutual, New York Life and Northwestern Mutual. "Make sure you give your agent as much of your medical history upfront, so the agent can match your risk with the company that can make the best offer," Ryan says.
Even with these cost-saving moves, Ryan says policyholders should be prepared for a premium increase of up to 20% every five years. To cap your future premiums, you can buy a "ten pay" policy. You pay more each year, but premiums end after ten years. Make sure you ask the insurer that it won't impose new charges after ten years.
Lots to comment on. Here are my thoughts:
- If you manage your finances correctly throughout your lifetime, their suggestions seem right on target. You should have enough saved up to cover much of your long-term care, so a three or five year plan seems appropriate. And the fact that you can share it with your spouse makes it an even better option for married couples.
- I have to think that inflation will be higher in the future than it has been in the recent past, so the 5% cost adjustment seems like a no-brainer to me.
- Where, oh where do you find a great long-term care insurance agent? Anyone have any suggestions? Ask friends and family? I have a good agent who helped me buy my disability insurance policy, but he's now out of that business. Perhaps I could ask him to refer someone who he's worked with.
- Anyone had any experience with any of these: Genworth, John Hancock, Mutual of Omaha, MassMutual, New York Life and Northwestern Mutual? Our company's 401k is with John Hancock, but I have no insurance experience with them. I believe my dad used to work for Northwestern Mutual for a short time selling permanent life insurance, but I have no direct experience with them either.
- That ten-pay policy seems interesting. I would need to run the numbers to see if it was a good deal, but there's something attractive about paying for a fixed amount of time and having the policy paid off. I guess it's kind of like an annuity -- you give them a set amount of money and that's it, it's all benefits from there on out. I wonder if they have a "one pay" where you can simply plunk down one lump sum and have all your benefits paid for in a single transaction.
In addition to the above, I ran into this copy of "Let's Talk", a PDF magazine from Genworth. It reminds us of another issue -- that our parents may need long-term care insurance. It suggests ways for bringing up the topic with them. Add this one to the "awkward conversations" list, just like talking estate planning with your parents. Ugh. It's bad enough we have to deal with these issues for ourselves, but we also need to work our parents through them.