Long-Term Care Insurance

How to Minimize Long-Term-Care Premiums

Choosing the right benefit period plays a big role in how much you'll pay for coverage.

How long is the average stay at a nursing home and at an assisted-living facility? That information would help me determine how much risk to take in my investments and how much insurance coverage I'll need.

That's a great question. The answer can help you decide if you need long-term-care insurance and, if so, how much coverage to get. It can also help you figure out good strategies for minimizing your premiums.

The average stay for nursing-home residents is 28 months, and the average stay for assisted-living residents is 27 months .

But many of those people receive some other kind of long-term care before or after their stay. About 40% of residents in assisted-living facilities came from an acute-care hospital or a short-stay nursing facility, according to the Association for Long-Term Care Insurance. Also, about 33.5% of assisted-living-facility residents move to a nursing home after they leave the facility, and many nursing-home residents received care in their own home first. On average, a 65-year-old today will need some form of long-term-care services for three years, according to the National Clearinghouse for Long-Term Care Information.

Because of these statistics, I usually recommend that people consider buying a long-term-care policy that provides three years of coverage. You may want a longer benefit period if you have a family history of long-lasting conditions, such as Alzheimer's disease (about one-third of today's 65-year-olds never need long-term-care services, but 20% of today's 65-year-olds are likely to need care for more than five years). The longer the benefit period, the higher the premiums -- lifetime benefits can cost more than double the premiums for a three-year benefit period.

You'll have the most flexibility if you buy a policy with benefits that are "short and fat" rather than "long and lean." If you buy a short-and-fat policy with a $200 daily benefit and three-year benefit period, for example, you're actually buying a pool of $219,000 for care. You can't use more than $200 per day, but if you use less, then you can extend your coverage for well beyond three years.

If you buy a long-and-lean policy with a $100 daily benefit and six-year benefit period, on the other hand, the policy won't pay out more than $100 per day. If your care costs $150 per day, you'll end up paying $50 out of pocket for every day of care.

One way to hedge your bets while lowering the cost is to buy a shared-benefit policy if you're married -- that way, each spouse buys a three-year benefit period, for example, but each can use time from the other's benefit period if one needs coverage for a longer period than the other. If one needs four years of coverage, for example, the spouse can use the remaining two years.

Because care is often received in the home first, it's a good idea to look for a policy with a zero-day waiting period for home care (even though it has a longer waiting period for nursing-home care). Or consider paying extra for a rider that eliminates the waiting period for home care. This is usually a much more cost-effective strategy than lowering the waiting period for all types of care, which can boost your premiums significantly.

The U.S. Department of Health and Human Services' National Clearinghouse for Long-Term Care Information has statistics about the need for care and can also help with your risk analysis.

Also see How Much Long-Term-Care Coverage Do You Need? and Long-Term-Care Insurance for Less for more information about buying a long-term-care policy. See Make Sure Your Insurer Pays Up for strategies to help avoid long-term-care problems at claim time.

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