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Few People Concerned About the Cost of Long-Term Care

Few People Concerned About the Cost of Long-Term Care

A recent study conducted by Greenwald & Associates for John Hancock Life Insurance Company reveals that Americans hold a frightening number of misconceptions about their potential need for long-term care. The survey compared current attitudes about long-term care with results of similar John Hancock surveys conducted in 1996, 1997, and 1998.

Of those polled, 57% said they were concerned about long-term care costs. This was down from 69% of respondents in the 1997 survey. In addition, only 51% (as compared to 59% in 1997) expressed worry about ever needing long-term care. Interestingly enough, the current survey revealed that 64% of those polled believed they would live to age 85 versus 61% in 1998. Also, 85% of the current respondents felt that the cost of long-term care could significantly reduce their retirement income versus 76% in 1998.

However, in spite of their concern about the loss of retirement income, the researchers discovered that 69% of the respondents have done little or no planning for long-term care. This is up from 58% in 1996, and 49% in 1997. In fact, 43% have made no provisions at all, up from 34% in 1996 and 24% in 1997.

When questioned as to how they would pay for long-term care if they didn’t buy insurance coverage, 43% of those responding said they’d pay the entire cost out of pocket. This is up from 40% in 1997. But 46% felt they couldn’t afford even one year of long-term care, given their current assets.

Reactions varied when the subject of depending on the government for long-term care was asked. Most of the respondents lacked confidence in the future of Social Security, Medicare, or Medicaid: 61% are not confident Social Security will be around at their retirement, up from 53% in 1998; 62% percent have no confidence that Medicare will be enough to cover their expenses, compared to 61% in 1998; and 62 percent felt that Medicaid won’t be available at all, up from 55% in 1998. Regardless of their feelings about the solvency of these federal programs, 47% said they’d pay for long-term care costs by transferring assets to family members and becoming eligible for Medicaid.

The most startling fact revealed by the study is that these unrealistic expectations about the need for long-term care and how to pay for it is not confined to any particular age group: the researchers polled 1,000 people ages 21 to 75 to obtain their results.

Obtain Long-Term Care Insurance While Young for the Best Rates

Obtain Long-Term Care Insurance While Young for the Best Rates

An American Association for Long-Term Care Insurance study of all 2005 long-term care insurance applicants revealed that 42 to 58 percent of all applicants between the ages of 50 to 59 qualified for good health discounts. Additionally, the percentage who qualify for good health discounts decreases somewhat for applicants in their 60s, but drops dramatically for applicants in their 70s.

Consumers who are in good health typically qualify for discounts that can decrease the cost of long-term care insurance by 10 to 20 percent each year. This means that a couple can save hundreds of dollars annually for the protection they need.

The researchers exemplified their findings by breaking down the total number of applicants into percentages who qualified for good health discounts by age range:

·   Under Age 30 – 66.5%

·   Between 30 to 39 – 61.0%

·   Between 40 to 49 – 53.7%

·   Between 50 to 59 – 44.2%

·   Between 60 to 69 – 31.9%

·   Between 70 to 79 – 18.8%

·   80 and Over – 11.2%

Eight leading long-term care insurers that represent approximately 80 percent of all individual policies sold in the U.S provided the study data. The researchers concluded from examining the statistics that consumers understand they will need long-term care at some point in their life. However, they often wait too long to plan for that eventuality. This failure to plan causes them to purchase long-term care insurance late in life and they end up paying a much higher premium as a result. The researchers went on to note that consumers don’t realize changes in their health can result in higher premiums for long-term care insurance, or make them ineligible for coverage at all.

There were two other important conclusions drawn from the study. First, consumers should begin investigating long-term care insurance options while they are still in good health, which for most people is in their 50s. The second is that consumers with less than perfect health should seek advice from a long-term care specialist who knows which health conditions various insurers will accept. Once a consumer has been declined by one insurer, they may find it impossible to obtain coverage from any insurer.

Study Shows Shorter Duration Long-Term Care Policies Are Adequate to Meet Most People’s Needs

When asked why they haven’t purchased long-term care insurance, most people answer that the coverage is simply too expensive. However, that excuse may be eliminated thanks to a national study conducted by Milliman, a leading independent national long-term care insurance actuarial firm.

The researchers examined claims data from approximately 1.6 million policies currently in-force. Their goal was to determine what percentage of long-term care insurance claimants with shorter duration policies actually exhausted all of their policy benefits. What they discovered is that only 14.4 percent of closed long-term care insurance claims lasted longer than 24 months. The study further revealed that approximately 33.2 percent of open claims last longer than 24 months, only 5.6 percent of closed claims lasted longer than 36 months, and only 16.2 percent of open claims last longer than 36 months. The study concluded that for a three-year benefit period, only 8 out of every 100 claimants exhausted their benefits.

Of course, there are catastrophic situations where individuals may need long-term care for many years. However, according to the study’s findings, the majority of consumers can receive adequate long-term care insurance protection with a shorter-duration policy. This is an important discovery, especially for those who believe unlimited protection is too expensive. The researchers added that some protection is better than none at all, and a shorter-duration policy is clearly more affordable. A consumer can reduce the cost of long-term insurance protection by 35 to 40 percent by purchasing a three-year benefit versus an unlimited benefit.

In an April 2006 article entitled Six Steps To Buying A Long-Term Care Policy, which was published on www.kiplinger.com, the author Kimberly Lankford offers the following advice about choosing a long-term care insurance benefit period:

“Increasing your benefit period from three years to lifetime could double your annual premium, so you should weigh the odds that you’ll need long-lasting care versus the extra price you’ll pay for coverage. The average nursing home stay is less than three years, but those averages include people who are in a nursing home for just a few weeks after a hospital stay and others who are in the nursing home for a decade or more, says Driscoll. (Marilee Driscoll is the author of The Complete Idiot’s Guide to Long-Term Care Planning and is quoted throughout Lankford’s article.)

“And these statistics do not include the home health care, assisted-living facility care and informal (unpaid) care received elsewhere,” she says.

Most people opt for a three-year or five-year benefit period, but it may be worthwhile to pay extra for a longer benefit period if you have a family history of Alzheimer’s or some other chronic disease.

If you’re trying to save money, Driscoll recommends shortening the benefit period rather than extending the waiting period.”

Long-Term Care Planning: A Pre-Retirement Decision?

Long-Term Care Planning: A Pre-Retirement Decision?

In the past, new and soon-to-be retirees generally assumed that they could put off long-term care planning until their later years. However, a new study shows that people who purchase long-term care insurance (LTCI) before retirement may stand to benefit greatly.

The study, conducted by the American Association for Long-Term Care Insurance (AALTCI), reveals significant advantages to starting the long-term care planning process in your 50’s, or even earlier. The study was based on information collected from more than 250,000 consumers who purchased LTCI in 2007.

The AALTCI examined data from 10 leading insurers to determine the percentage of applicants who qualified for preferred health discounts on LTCI. The Association also looked at the percentage of applicants who did not qualify for insurance because of a pre-existing condition.

The Eye-Opening Statistics

Here are a few of the interesting statistics released from this enlightening study:

·   On average, 22.9% of applicants between the ages of 60 and 69 were declined coverage because of a pre-existing condition

·   42.2% of applicants between 70 and 79 were declined

·   69.8% of applicants over 80 were declined

·   On average, just 13.9% of applicants aged 50 to 59 were declined

·   51.5% of people between the ages of 50 and 59 who applied and were accepted for coverage qualified for preferred health discounts

·   66.8% of applicants between the ages of 40 and 49 qualified for the discount

These numbers clearly suggest that consumers may be better off if they apply for LTCI before retirement, when they are less likely to have a pre-existing medical condition.

Not only are younger applicants more likely to be accepted for coverage, but they also stand a better chance of receiving a valuable preferred health discount. These discounts can reduce the cost of long-term care insurance by 10% to 20% annually, which can amount to savings of hundreds of dollars a year for a couple. Additionally, these discounts last a lifetime. Once an applicant qualifies for a preferred health discount, the insurer cannot retract it should the applicant’s health change in the future.

Losing At the Waiting Game

Still, the vast majority of consumers wait until after retirement to apply for LTCI. According to the AALTCI, approximately 400,000 people obtained LTCI coverage in 2007, and 84% of them purchased a policy before the age of 65. However, based on this new study, consumers may want to consider purchasing a policy even sooner.

“Many people still wait too long to start the planning process only to discover they can’t get coverage no matter how much they are willing to pay,” Jesse Slome, Executive Director of AALTCI, said in an association press release. “Planning for long-term care is similar to retirement planning. There are significant advantages and reasons to start early. Your health when you apply is probably the most important.”

More Preferred Health Discounts All Around

The new AALTCI study also shows that, in general, more people qualified for preferred health discounts in 2007 as compared to 2005. This may be a sign that our nation’s population is a little healthier than it was just two years ago.

However, most LTCI applicants who received preferred health discounts were younger in age, according to the study. For example, 66.8% of applicants between 40 and 49 received discounts in 2007 as compared to 53.7% in 2005—a 13.1% increase.

Better Shop Around

However, the AALTCI points out that each insurer follows a different set of standards when it comes to deciding who qualifies for discounts and which applicants will be accepted or declined for coverage. Additionally, discounts and insurance rates vary greatly depending on your age, marital status and health. Therefore, if you’re considering buying LTCI, you should shop around before settling on an insurer.

“It pays to speak with a knowledgeable long-term care insurance professional who can offer coverage from more than one insurer,” Slome said in the AALTCI press release. “The difference in cost can be as much as 30 percent or more annually and since it rarely is advantageous to change policies, it pays to get the best coverage for the best price from the onset.”

The Risks of Self-Insuring for Long-Term Care

The Risks of Self-Insuring for Long-Term Care

Statistics show that one in every five people who reach the age of 65 will eventually require some form of long-term care (LTC). This means a great deal of us will face the exorbitant LTC costs at some point in our life.

On top of that, Americans are living increasingly longer lives. Recent estimates give a healthy 65-year-old man a 24% chance of living to at least 90 and a healthy woman a 35% chance of living that long. Obviously, this is great news. However, the longer we live, the more likely we are to suffer from a LTC event.

Unfortunately, Medicare does not cover LTC expenses. This is why it’s critical for each and every family to plan ahead for their LTC needs. Without the proper protection, such an event could devastate a family’s finances.

Can you afford to self-insure?

If you have a high net worth, you may assume that you’d be able to cover LTC costs on your own when necessary. However, financial experts point out that LTC planning is crucial for everyone—even for affluent families. That’s because the costs of self-insuring for long-term care may be much more expensive than you realize.

Consider this: the national average daily rate for a nursing home is currently $209 a day.* Therefore, a one-year stay would cost $76,285, which adds up to $381,425 for a 5-year stay.

Let’s say a couple named Bob and Jan are in their mid-50’s. Bob and Jan have $2 million in liquid assets, not including their primary residence. Therefore, they assume they’d have more than enough funds to cover a 5-year-stay in a nursing home.

However, Bob and Jan aren’t factoring in these additional costs of self-insuring for long-term care:

  • Inflation: The ever-increasing rate of inflation could quickly magnify the cost of long-term care. What costs $200 today could cost as much as $1,000 30 years from now.
  • Taxes: If you are forced to sell an asset that has appreciated in value or take a qualified plan distribution to cover the cost of long-term care, you will probably face some hefty tax consequences.
  • Lost investment opportunities: If you end up paying out of pocket for long-term care for five years, you are losing out on other investment opportunities. If you were not self-insuring for long-term care, you could be investing that money elsewhere.

Considering these factors, let’s look at the real cost of long-term care for Bob and Jan. Let’s say that Bob will require long-term care in 30 years, when he’s in his 80’s—an age when many individuals require long-term care. In 30 years, today’s daily nursing home cost of $209 could balloon to more than $900 a day due to inflation. Therefore, if Bob required long-term care for five years, he and Jan would pay $1.66 million out of pocket. Obviously, this is a significantly higher amount than the $381,425 they initially calculated.

On top of that, let’s say Bob and Jan must take distributions from their qualified retirement plans to cover the cost of long-term care. As high net worth individuals, Bob and Jan have a combined state and federal marginal tax bracket of just over 37%. That means they could face an additional tax liability of $610,000 if they take large enough distributions from their retirement plans.

Consequently, the total cost of Bob’s long-term care event could exceed $2.27 million. That means if Jan lives another five years after Bob dies, she may have no funds remaining to pay for every day expenses—much less for her own long-term care event.

LTCI is for everyone

As you can see from Bob and Jan’s scenario, even high net worth families need to consider purchasing long-term care insurance (LTCI). Because LTCI helps cover the exorbitant costs of long-term care, it can protect your family’s finances if you were to face a long-term care event.

If you want to discuss your long-term care insurance options, meet with a Brian Gruss. Brian can evaluate your unique situation and help you customize an effective plan.

* Source: Genworth Financial 2008 Cost of Care Survey April 2008. The cost of care in a metropolitan area may differ from the state average rate.