Waiting To Buy Long-Term-Care Insurance Adds Up

DAVID GREENE, HOST:

Over the last several weeks on MORNING EDITION our series "Family Matters" has introduced you to three multigenerational households. Each has an elderly parent or grandparent being cared for by a younger member of the family from the Baby Boom generation. It's a sacrifice millions of Americans are familiar with, and the experience often has the caregivers thinking about how they'll confront their own later years.

Some are turning to long-term-care insurance, and to learn more about that option, we called Kim Lankford. She's a writer for Kipplinger's Retirement Report. Good morning.

KIM LANKFORD: Good morning.

GREENE: You've been writing about long-term-care insurance for a number of years, but for those of us who aren't familiar with it, give us the basics. What is it and what does it cover?

LANKFORD: Well, long-term-care insurance covers care whether it's in a nursing home, assisted living facility, or in your own home. And it provides a daily benefit so you get to pay for that care and can really protect your retirement savings. So this policy, it provides the cost to help pay for all or part of that care if you end up needing help with activities of daily living, or if you have cognitive impairment. So there's these specific triggers and then it'll pay out to pay for that care.

GREENE: You're saying protect your retirement savings, these - all the money you save for retirement, you can actually use it for retirement, as opposed to having been forced to use that money on your care in a nursing home...

LANKFORD: That's exactly right. And there's so many people, especially if one spouse ends up eating care and the other spouse and the living for years and years afterwards, I mean they could have eaten out of all that money or a huge hunk of that money that they'd saved.

GREENE: As I understand it though, the rates that you pay for long-term care insurance have been going up over the last few years. Why is that happening and give us some rough idea what it would cost to buy this kind of insurance.

LANKFORD: Sure. Well, about 10 - 15 years ago, people paid the same rate for many, many, many years. But as time went by, insurance company realized that more people were needing to use this money, and more than they had originally expected. Also, a lot of those older policies had provided lifetime benefits. Which means that they will pay out as long as you need care for the rest of your life, so this was just, you know, financially devastating to many of the insurance companies.

So, some of the companies ended up leaving the business and other ones ended up raising rates for people who had purchased their policies. Also, the new policies, now, are a lot more expensive than...

GREENE: Yeah, what kind of cost or would talk about or...

LANKFORD: Well, generally if you get $150 daily benefit and a three-year benefit period, which covers about the average length of care, a couple could pay about, you know, $3500 a year for both of them to get these basic benefits.

GREENE: You seem to be describing an industry that sounds like it's in a bit of flux right now. I mean, companies that have gone out of the business altogether because they can't afford to cover these long-term costs, and so they're not offering these benefits anymore. I means is their an argument to be made that people should wait a few years, just not buy into this type of insurance until things settle down?

LANKFORD: Well, the tough thing with long-term care insurance - and this is where it's very different than other types of insurance - the younger you are when you buy the policy, it's much cheaper than if you wait a few years. Every few years you wait, it ends up getting a lot more expensive. And then you'll have that more expensive premium locked in for the rest of your life.

In your mid-50's, we say it's usually kind of a sweet spot. It is, you know, the rates are usually a bit more competitive then. And also, it's before a lot of people have started to develop medical conditions which then also make it more difficult to buy this coverage.

GREENE: A lot of options - partial coverage versus full coverage - what's your choice? Do you have a long-term insurance plan?

LANKFORD: I don't yet, but my parents do. And I'm actually really, really relieved that they do. They bought there is many years ago. And actually my in-laws bought there's several years ago and their rate just increased. And so, they just came to me for a advice and asked what they should do. And when looking at what the new price was going to be, it still is a much better deal for them to keep that policy rather than look for a new policy.

If you do get a rate increase and you have lifetime benefits, for example, or a five or six-year benefits, one way to help keep those premiums manageable, but still have a good deal of care, is to lower that benefit period to three or four years; still covers the average care.

But I'm really glad that my parents bought a policy several years ago. I mean that's a big relief on me, so we know we won't have to worry about it. And it sells covers part of their care and they have their savings to help cover some of the rest of it.

GREENE: Kim Lankford, she writes for a Kiplinger's Retirement Report and Kiplinger's Personal Finance magazine. Kim, always great when you come in. Thanks so much.

LANKFORD: Oh, thanks for having me.

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