ASK KIM


Lower Your Long-Term Care Insurance Costs

Kimberly Lankford

I can't really afford to buy a long-term care insurance policy with lifetime benefits. Should I consider getting a policy with a shorter benefit period?



I'm looking into buying long-term care insurance and wanted to get lifetime benefits because several people in both my family and my wife's family ended up living until their 90s and spending quite a while in a nursing home. But I can't really afford to buy a policy with lifetime benefits. Should I consider getting a policy with a shorter benefit period?

That's probably a good idea. Shortening the benefit period can lower your costs significantly while still providing a great deal of protection. A 55-year-old would pay about $4,900 per year to get a John Hancock policy with a $200 daily benefit, 5% compound inflation adjustment, 60-day waiting period and lifetime benefits.

But he could save more than $1,000 per year -- lowering the premium to about $3,700 -- by buying a policy with a 10-year benefit period instead, which still provides much more coverage than most people need.

You'll lower your premiums even further -- to $2,900 per year -- if you get a policy with a five-year benefit period, or pay only $2,230 for a three-year benefit period.

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Because the average nursing-home stay lasts for about 2.6 years, most people buy a policy with a three-year benefit period. But with longevity in your family, it's worthwhile to consider a longer benefit period. A study by Milliman, an actuarial consulting firm, found that most people on long-term care insurance claims fall into two categories: either they need care for a short time or for a very long time. The study found that only about 7% to 8% of 70-year-old claimants needed care for more than five years.

But some of the people who still were receiving care after five years continued to need it for even longer than that -- an extra two years for men and four years for women.

Buying a ten-year policy should cover you in a longer-claim situation. But because the odds are small that you'll need the coverage for that long, consider buying a shorter policy with a shared-care benefit instead. With this kind of policy, two spouses have one big pool of benefits. If you each buy a six-year benefit period with a shared-care policy, you'll get a total pool of 12 years. If one spouse only needs coverage for two years, the other spouse still gets ten years worth of benefits.

These policies tend to cost a bit more than buying two policies with the same benefit period without the shared-care feature (sometimes 10% more). But they can give you confidence to buy a shorter benefit period -- which will save you a lot of money -- with less worry that you'll run out of coverage.

Got a question? Ask Kim at askkim@kiplinger.com.




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