The Wall Street Journal
Weekend Investor – April 7, 2012
Don’t Grow Old Without It
Why Long-Term-Care Insurance Is a Must
By Kelly Greene
Long-term-care insurance: It can make the difference between living out your life the way you want and becoming a burden to your family or a ward of the state.
Unfortunately for consumers, shopping around is difficult. Policies from different carriers are packaged with a proliferating number of bells and whistles.
A decade ago, the conventional advice was to spring for unlimited lifetime coverage. That option has become so expensive and so unpredictable for insurers that some have dropped it altogether. Instead, for most people, it is best to choose a “short and fat” policy, with fewer years’ coverage and a larger daily benefit. Most people buy three years’ coverage, as the average nursing-home stay lasts about that long—though that could follow years of other care.
Many experts consider the level of inflation protection you choose to be the most crucial piece of the policy. Since people typically make their first claims around age 80, those buying policies in their 50s and 60s need to make sure their coverage keeps up with rising medical costs.
Also consider a “shared care” rider that gives you and your spouse access to each other’s benefits if you use up your own.
Comments April 7, 2012
Per my discussion with Kelly Greene in advance of this article, the cost of long term care will likely continue to increase as will the need for long term care. Long term care insurance, like automobile or homeowners insurance, shifts the risk for a large expense from you to the insurance company. While you have a 1 in 340 chance of a major auto accident and a 1 in 1,200 chance of a total loss from a fire, you have a 7 in 10 chance of needing long term care (if you live to 65 years of age or older).
Fortunately, most long term care insurance policies can be purchased with inflation protection. With inflation protection the policy’s benefits will grow and keep pace with the rising costs of long term care. In most states, policies with inflation protection are certified under the state’s Long Term Care Partnership Program. Partnership Program certification is available in two versions (depending upon your state):
1) Dollar for Dollar asset protection – with each dollar a policy pays in benefits a dollar of assets is ignored by Medicaid.
2) Total Asset asset protection – an unlimited amount of assets are ignored by Medicaid.
Importantly, Dollar for Dollar and Total Asset Long Term Care Partnership Program certified policies protect your assets from Medicaid without a “look back” period.
Waiver of Premium. Policies with a waiver of premium allow you to stop paying their premiums when the insurance company begins paying your claim. Not only is this a saving grace during a difficult time, but when you stop paying premiums you are unaffected by rate increases.
Joint Waiver of Premium. Polices with a joint waiver of premium allow either you and your spouse or partner to stop paying premiums when the insurance company begins paying either of your claims. When each of you stop paying premiums both of you are unaffected by rate increases.
Mitigating a Rate Increase. Purchasing a policy with a limited pay option can mitigate the risk of a rate increase. Many insurance companies offer a “Pay-to-65” option that allows you to pay the premiums until you reach age 65, at which time the policy is paid in full. Many insurance companies offer a “10-Pay” option that allows you to pay the premiums over a period of 10 years, at which time the policy is paid in full. On top of that, some companies offer a rate guarantee that can overlap a limited pay option. Once a policy is paid in full rates can never be increased.
Insurance Commissioners Reject Rate Increase Requests. Some Insurance Commissions have been strict with long term care insurance companies, approving only a fraction of the requested rate increase on existing policyholders. Some Insurance Commissions have been very strict with long term care insurance companies, outright rejecting the rate increase request on existing policyholders.
Aaron Skloff, AIF, CFA, MBA
CEO – Skloff Financial Group
Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA), Master of Business Administration (MBA), is the Chief Executive Officer of Skloff Financial Group, a Registered Investment Advisory firm. The firm specializes in financial planning and investment management services for high net worth individuals and benefits for small to middle sized companies. He can be contacted at www.skloff.com or 908-464-3060.