If long-term care insurance seems expensive, do the math and figure out how much it would cost, if you do not have long-term care insurance. It won’t look so expensive.
Boomers are concerned about rising premiums, but the longer you live, the more likely that you will need long-term care insurance to protect your retirement savings from the impact of needing long term care. Whether you find yourself or your spouse needing to stay in a nursing home for an extended period of time or to have in-home care for a chronic illness, long-term care is designed to protect the family and its assets.
Kiplinger’s recent story, “The Long-Term-Care Insurance Dilemma,” reports that the median cost of one year in a private room in a nursing home was $97,500 in 2017, according to Genworth's Cost of Care Study. A year of assisted living was $45,000, and 44 hours per week of home care–which most people prefer–was $49,000. Care costs have been rising by 3-4% per year over the past five years.
Rising costs have put pressure on long-term-care insurers, and the rates have spiked by at least 50% for most policies purchased between the mid-1970s and 2005. Some price increases are more than 100%. Almost every long-term-care insurer has raised rates at least once, and more rate increases are coming.
Insurers say they made major mistakes when pricing these policies: they thought more people would drop coverage, they overestimated the interest rates they'd earn on their investments and they underestimated the size and length of claims.
But there are ways to make long-term-care insurance more affordable.
First, don't drop your policy if you're hit with an increase. This is because a new policy will cost much more. If you can't afford the higher premiums, your insurer will generally give you several options. If you haven't bought a policy yet, you can still find coverage that protects a significant part of your retirement savings with affordable premiums.
You can reduce your premiums by purchasing a policy with less inflation protection and by getting a shorter benefit period.
Insurance companies are wiser about past pricing mistakes and hopefully increases in the future will not be as dramatic as they have been in the past. Regardless, your insurance budget should include a 20% increase every decade. In the worst-case scenario, you’ll have extra money on hand, if long-term insurance policies don’t increase at that rate.
Reference: Kiplinger (April 4, 2018) “The Long-Term-Care Insurance Dilemma”