Short-Term-Care Insurance Policies on the Rise

These policies are light on price but also on coverage, leading some experts to question whether the policies offer real value to consumers.

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When it comes to long-term-care planning, some consumers are starting to think short term. People who can't qualify for -- or can't afford -- long-term-care insurance are increasingly turning to short-term-care policies, which offer benefits for up to one year.

Short-term-care policies have lower premiums and looser underwriting standards than long-term-care policies, making them more accessible to people with health problems. But patients who end up needing extended care will find that these policies are sorely lacking. And short-term-care policies may not cover all the levels of care that a long-term policy would cover. Some short-term policies only cover home care, while others will only pay for care in a facility.

Short-term-care policies, offered by carriers such as MedAmerica, Kemper and Equitable Life & Casualty, have been around for years but are gaining renewed attention as long-term-care insurance premiums have climbed sharply in recent years. And wealthier consumers who apply for long-term-care coverage are often declined for age or health reasons.

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Short-term-care insurance is "your plan B option," says Jesse Slome, who runs trade groups for both long- and short-term-care insurance. While long-term-care insurance is your best bet if you can afford it and meet the health qualifications, Slome says, "some insurance is better than no insurance."

But some in the industry are more skeptical that short-term-care policies offer real value to consumers. If you can afford to pay short-term-care insurance premiums, you may well be able to afford care in the short term without bothering with insurance. A 64-year-old in Nebraska, for example, can get a policy that will pay a $120 daily benefit for 100 days for an annual premium of $312, according to a quote provided by Premier LTC Brokerage, in Norfolk, Neb. If he pays premiums for 20 years before making a claim, he has paid $6,240 for a maximum of $12,000 worth of benefits. Some short-term-care policies offer even lower benefits of $50 per day -- just a fraction of a facility's cost.

Older consumers should also remember that Medicare often foots some of the bill for short-term care, says James Glickman, president of Life Care Assurance, a Woodland Hills, Cal., long-term-care reinsurer. If you need rehabilitation in a nursing home following a hospital stay of at least three days, Medicare may cover most of the costs for up to 100 days.

Coverage of Last Resort

Many people who want to purchase some form of coverage may find short-term care is their only option. Those who are declined long-term-care coverage as a result of conditions such as arthritis or diabetes, for example, may be eligible for short-term-care insurance, says Barbara Stahlecker, national marketing director at Premier LTC Brokerage.

Although it's difficult to make direct cost comparisons between short- and long-term-care coverage, given their varying benefits, Slome offers an example of how much older couples might expect to pay for each type of policy. A 60-year-old couple can get a short-term-care policy that provides $150 in daily benefits for up to 360 days, with a 30-day elimination period, for $1,235 annually, he says. (The elimination period is the number of days between the time you become eligible for benefits and when the insurer starts paying.) The couple would pay $2,170 a year for a long-term-care policy that provides the same daily benefit for up to three years, with a 90-day elimination period.

A benefit for single women: Unlike long-term-care insurance, which often charges single women 20% to 40% more than single men, short-term-care insurance offers unisex pricing.

Short-term-care policies also require you to jump fewer hurdles before collecting benefits. For example, long-term-care policies generally won't pay benefits unless your doctor certifies that for at least 90 days you're going to need help with at least two "activities of daily living," such as bathing and dressing. Short-term-care policies typically don't have the 90-day requirement.

Eleanor Laise
Senior Editor, Kiplinger's Retirement Report
Laise covers retirement issues ranging from income investing and pension plans to long-term care and estate planning. She joined Kiplinger in 2011 from the Wall Street Journal, where as a staff reporter she covered mutual funds, retirement plans and other personal finance topics. Laise was previously a senior writer at SmartMoney magazine. She started her journalism career at Bloomberg Personal Finance magazine and holds a BA in English from Columbia University.