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Long-Term Care Insurance: Buyer Beware

Coverage for nursing homes, assisted-living facilities isn't for everyone

THURSDAY, Oct. 9, 2003 (HealthDayNews) -- As the baby boomers edge closer to the day they'll need nursing homes and assisted-living facilities, long-term care insurance can look like a good idea.

But it's wise to look carefully before you buy, says the November issue of Consumer Reports. This type of coverage is too risky and too expensive for many consumers, the magazine says.

And the policies themselves often aren't worth the money. Of 47 policies investigated, Consumer Reports found only three that met its criteria.

The prospect of long-term care is an emotional and daunting concept. According to Consumer Reports, the average private room in a nursing home will cost about $175,000 a year by 2021.

Since the mid-1980s, long-term care insurance has promised to pay the expenses. The question is, does it really pay and does it pay for what you need?

"It can be sold on fear. People are worried about burdening loved ones with care and this seems like the answer," says Mandy Walker, associate editor at Consumer Reports and author of the forthcoming article. "The problem is that a) they may never need it; b) may not be able to afford a good plan; and c) may not be able to keep it in place when a spouse dies. Also, a lot of companies are going out of business or don't have very good financial ratings. It's very risky. There are a lot of shortcomings."

Before committing to buy long-term care insurance, Consumer Reports advises doing your research:

  • Get a list of companies selling long-term care coverage from your state department of insurance.
  • Assess your financial situation. Generally speaking, you don't need this type of coverage if your net worth is less than $200,000 (Medicaid will pick up the tab after you've depleted your own funds) or more than $1.5 million (you'll be able to pay for your own care). "It's an ideal product for the middle-income market," agrees Jesse Slome, co-founder of the American Association for Long-Term Care Insurance.
  • Consider a plan if, by the age of 55, you have a chronic medical condition that could require nursing-home care or if you have a family history of a debilitating disease. It could also be a good idea if you're single and have no family to take care of you.
  • If you don't have a current or potential medical condition, wait until you're about 65 to purchase a plan. The premiums will be higher than when you were 40, but you won't have to pay out for 40 or so years before possibly needing the coverage (the average age of people admitted to a nursing home is 83). If you wait too long after 65, the company may reject you.

Once you've decided to buy, look for a plan that:

  • Is underwritten by a sound company. Consumer Reports only recommended companies that had a B+ or higher rating for financial strength in the Weiss Ratings database. You can also look at ratings from A.M. Best, Moody's or Standard & Poor's. The three plans that Consumer Reports endorsed were: Physician's Mutual Vista Care TQ/P104; Farmer's New World Farmer's Premier LTC/TQ1000; and John Hancock Custom Care/LTC-02. Slome warns, however, that rates and plans "change every day."
  • Only requires that a person be able to perform two or fewer "activities of daily living," one of which should be bathing. Look for a policy that covers different types of care (for example, nursing home, assisted-living and home care).
  • Carries an inflation guard that increases your benefit by 5 percent compounded annually. "That's about the same rate as nursing home costs are expected to go up," Walker says.
  • Has an elimination period of 30 days or less. This is the amount of time you will have to pay out-of-pocket (like a deductible). This will also likely mean a higher premium, however, so make sure you can afford it.
  • Has a four-year benefit period. "That covers the period most people spend in a nursing home," Walker says. "Two-and-a-half years was average."

The bottom line, according to Consumer Reports, is that there are not a lot of good choices out there.

"We felt that for many people, it was very risky and very expensive and would probably end up being too expensive," Walker says. "There's no guarantee the premiums won't go up. There's no guarantee what nursing homes will cost. It's paying out a lot of money that you don't know if you're going to collect on or not. You have to weigh that with your peace of mind. For a lot of people it doesn't make sense. For some people, they might want to consider it."

More information

The National Association of Insurance Commissioners has links to state insurance departments. Ratings for different insurance companies can be found at A.M. Best Company, Moody's and Weiss Ratings. Some involve fees.

SOURCES: Mandy Walker, associate editor, Consumer Reports, Yonkers, N.Y.; Jesse Slome, co-founder, American Association for Long-Term Care Insurance, president, Sales Creators, and editor, Long-Term Care Insurance Sales Strategies magazine, Westlake Village, Calif.; November 2003 Consumer Reports
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