People who need long-term care are paying more each
year. You may be able to partially protect yourself
by buying a long-term care insurance policy when you're
relatively young. For added protection, include a
cost of living adjustment to the benefits you might
receive.
According to Genworth 2009 Cost of Care Survey, the
national average daily rate for a private home in
a nursing home is over $200: around $6,000 per month.
A private one-bedroom unit in an assisted living facility
costs over $2,800 per month, on average, and you'll
pay anywhere from $18.50 to $46.22 an hour, on average,
to have an aide come to your home, depending on the
type of agency you retain.
These figures are averages; you'll pay less in some
areas of the country, more in others. In Dubuque,
Iowa, for example, the median annual cost for assisted
living is $24,000. In Bridgeport, Connecticut, that
cost is over $52,000. For almost any type of long-term
care the cost is likely to be substantial.
Acquiring insurance
Many people will seek to buy insurance to cover the
possible future cost of long-term care. Although many
insurers offer such coverage, there is a catch to
buying these policies. The longer you wait to buy
coverage, the greater the chance you will be in poor
health. If you have a health condition that increases
the chance you'll need care, you will pay more for
a policy - and you might not be able to get coverage
at any price.
Therefore, you may want to start shopping for a long-term
care policy while you're in your 50s or 60s. At that
age, you have a good chance of getting coverage at
a relatively low cost. But here there's also a catch:
you have to plan for possibly receiving benefits far
in the future.
Example 1:
Bruce Moore buys a long-term care insurance policy
at age 62. He selects a policy that will pay a benefit
of $200 per day, whether he needs care at home, in
an assisted living facility, or in a nursing home.
Bruce is in good health now but fears he'll need care
when he is in his 80s or 90s.
According to the Genworth survey, costs for assisted
living facilities and nursing homes have been increasing
at more than 4% per year. At a 4% rate, costs double
in 18 years. Therefore, if Bruce needs care at age
80, his $200 daily benefits might pay only half of
a $400 daily nursing home bill.
Coping with COLAs
Consumers who want protection from rising costs can
buy a long-term care policy with a cost of living
adjustment (COLA).
Example 2:
Bruce chooses a 5% simple annual benefit increase
as a COLA for his policy. Each year, his daily benefit
will increase by $10: 5% of $200. Therefore, if Bruce
needs care at age 80, 18 years after purchasing the
policy, he will receive his $200 original benefit
plus $180 (18 years of $10 COLAs) for a total of $380.
That amount will cover nearly all of a $400 daily
nursing home bill.
In recent years, insurers have added more choices
to the COLA menu. Formerly, consumers typically had
three choices: a 5% simple annual benefit increase,
a 5% compound increase, or no inflation increase at
all. Today, many companies offer a choice between
3%, 4%, or 5% COLAs, simple or compound. You also
might be able to buy a COLA that's based on the Consumer
Price Index (CPI). The more inflation protection you
choose, the more you'll pay. Thus, because the CPI
has risen around 4% per year over the past 30 years,
on average, a CPI COLA generally will cost less than
a 5% COLA.
