Rising Tide: The Latest on Long-Term Care Insurance

We’re living in a time of change for both health care costs and coverage. Yet one thing remains the same: Everyone needs to consider how they’ll pay for extended care later in life should they need it. Long-term care insurance is one option, but it’s changing right along with the overall health care landscape.

Costs and expectations

The need for long-term care insurance is driven by the costs of elder care. This includes expenses related to home health care services and stays at skilled nursing facilities.

The growth rate of these costs between 2011 and 2016 is projected to be 5.2% annually, according to a 2012 study by business researchers The Freedonia Group. That’s roughly the same as the 5.5% yearly growth between 2006 and 2011.

Why to buy

If you’re concerned that long-term care costs could consume most of the assets you’ve spent a lifetime building and leave little or nothing for your heirs, long-term care insurance can provide protection. Specifics vary, but most policies help cover extended care at your residence, in an assisted living facility or in a nursing home.

Long-term care insurance doesn’t negate the need for typical health care coverage or Medicare. Rather, it kicks in once the long-term care benefits of both are exhausted.

Yet coverage doesn’t always start immediately. Policies often include “elimination periods,” during which the insured must wait for payouts to begin. (Many other policy caveats may also apply.) But longer elimination periods have an upside: They can reduce premiums.

When and how

Speaking of premiums, generally, from a cost perspective the ideal age range during which to purchase long-term care insurance is 50 to 65. It’s a tricky decision: Buy too early and you could wind up paying over a longer period than necessary; buy too late and the premiums could be very expensive — or you might not be eligible for coverage at all.

Even under the best of circumstances, however, expect premiums to be considerable. Premiums have gone up between 30% and 50% over the preceding five years, according to the American Association for Long-Term Care Insurance. This is largely because claims costs have been high and interest rates low — adversely affecting insurers’ profitability.

So it’s best to shop around for a policy. An attractive option may be a hybrid product that combines conventional life insurance or an annuity with long-term care coverage. Such a product reduces the risk that you could pay premiums for years but get no benefit from them (other than peace of mind) if you never need long-term care.

Also, try to buy a policy while you’re still working so you have the income to absorb some of the expense. You may, however, be able to claim a portion of your premiums as an itemized medical expense deduction on your income tax return.

Mixed news

For many people, the tide is still rising when it comes to the need for long-term care insurance. Yet the cost of acquiring such a policy is rising right along with it. Work with your financial advisor to consider whether this coverage should play a role in your overall plan for managing health care expenses.