Ask Kim
How Much Long-Term-Care Coverage Do You Need?
Start by finding out the average cost of care where you live. A just-released study by insurer Genworth makes that easy.
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
April 30, 2009
What is the rule of thumb for the amount of assets you need to self-insure against potential long-term-care costs rather than pay premiums for long-term-care insurance?
Everyone who has enough money to afford the premiums should at least consider buying long-term-care insurance, no matter how much savings you have. The potential costs for extended care in a nursing home, in an assisted-living facility or in your own home can be so large that they could destroy your retirement savings, even if you start out with a substantial nest egg. The protection becomes even more valuable if your retirement-account balance has tumbled over the past year or so.
The average cost for a private nursing-home room is $74,208 a year ($203 a day), according to the cost-of-care survey released on April 30 by insurer Genworth. And that's in today's dollars. If the cost of care continues to rise at its current rate (more than 4% per year), then one year in a nursing home could be more than $270,000 if you need care in 30 years.
Nearly three-fourths of Genworth's initial claims are for long-term-care services received in the home, and those expenses can be even higher. The survey found the average rate for state-licensed home health aides was $18.50 per hour, which adds up to more than $400 per day for people who need 24-hour care.
To figure out how much coverage you should buy, start by looking at the average costs of care in the area where you plan to live. The prices vary a lot across the country: The average cost of a nursing-home room in Idaho is $49,153 per year, but it runs $125,925 in Connecticut. For specifics, see Genworth's Cost of Care Survey, which shows the average costs for a nursing home, an assisted-living facility, adult day health care, a home health aide and homemaker services, and includes a calculator to help you estimate future costs.
You could buy a long-term-care policy with a daily benefit that would cover the entire cost, or you could buy enough insurance to cover a portion of the cost and plan to self-insure any extra expenses yourself, which still limits some of your risk.
The more difficult decision is the length of benefit period to buy. Premiums for lifetime benefits are usually about twice as much as they are for a three-year benefit period, which is enough to cover the average length of care.
If you're married, you may be able to hedge your bets by buying a shared-benefit policy, which provides a pool of benefits -- say, six years between the two of you. If one spouse needs two years of care, the other can still get four years of coverage.
If you end up with a long-lasting condition, you could exhaust your benefits. But many states now offer partnership programs that let you qualify for Medicaid without having to spend all of your money. Say, for example, you buy a partnership policy that provides $200,000 of coverage. If you exhaust your benefits but still need more care, you can protect up to $200,000 of your assets and still qualify for Medicaid.
Several companies have recently started offering policies that are simpler and less expensive, yet still provide enough coverage to meet most long-term-care needs. See Long-Term-Care Insurance for Less for details. And for more information about all kinds of long-term-care insurance policies, see Kiplinger's Long-Term Care Center.
Reader Comments (4)
Posted by: Tom Mitchell at 05/01/2009 08:40:27 AM
I think she is right that no matter your assets you should consider the purchase especially in the current financial markets and the values of everyone's accounts falling. She gives a lot of good information on the product too. The article just sounded a little "sales-y" to me for a reporter to be writing.
Posted by: Robert McClain at 05/02/2009 12:30:04 AM
Work with an agent from a good mutual company. This kind of product has so many moving parts that it seems unwise to try to create a solution on a DIY basis. Inflation protection is supremely important. Good mutual companies are Mass Mutual, New York Life and Northwestern Mutual. Stock companies like Genworth have stumbled badly, and that's not an attack...it's just a fact.
Posted by: Laura rossman at 05/03/2009 06:24:08 AM
Kim, I agree people should consider long-term care insurance but you didn't answer the question about the rule of thumb on amount of assets. I find most specialist will tell you if you have less than $150,000 in savings (or will have as you approach retirement age) or you aren't sure you can afford to pay premiums when you stop working, long-term care insurance may not be the right answer. If you can afford it. it's a great way to have peace of mind that you won't be a financial burden to your family and you'll be able to have choice of where you receive care. But if your retirement savings are small, you might be better off finding ways to build your retirement savings first. I write about family money issues at www.moneyinthemiddle.com
Posted by: Vaughn Bailey at 05/04/2009 10:48:47 AM
This article addresses a lot of great points about LTC. However, there is one significant factor that is not mentioned here. One of the most important factors in deciding on LTC is your eligibility. This is one of the hardest coverages to qualify for with a really good company. Underwriting is much different than that of a life insurance policy. It will only get more difficult as LTC costs increase. I am 38 years old, and have had a policy for 5 years. I was more concerned about being eligible when I need it, than what it costs. I have a ten pay policy, which I would recommend when buying at my age, so you have a finite premium investment. Waiting until you are in your 50's or 60's may be a gamble on whether it will even be an option for you. Additionally, I drive over 50,000 miles per year, and LTC policies are not just for growing old. An unfortunate accident could trigger benefits for me even prior to my need in later years. Just something else to think about when considering this coverage.