As concerns mount over the future of government-run care programs for the elderly, more and more people in their 40s and 50s are taking matters into their own hands: They are paying $1200 to $1800 a year on insurance to cover the expense of future nursing-home or in-home care. While you can buy this insurance in your 60s or 70s, premiums are considerably more attractive if you begin purchasing it earlier.
Sales of long term care insurance have been surging recently by about 18% a year, with younger buyers leading the way. The average age of customers--72 in 1990--has plunged to about 58, says the Health Insurance Association of America, a trade group.
So far, fewer than 10% of all adults in the U.S. have bought the insurance, with about seven million policies now in force. But further growth seems all but assured. A broad range of experts are warning of a looming crisis in Social Security and Medicare as the baby boomers grow old. And private long term care insurance has become much more attractive than it was just a few years ago. The language of the policies has become more standardized, making shopping easier. And, you can now design your own plan to cover any dollar amount of nursing home expenses--say, $200 a day over two years. It could also be set up to include home-care and other expenses not covered by Medicare, such as assisted living, which combines housing with personalized supportive services and care. In short, long term care insurance is meant to supplement mainstream medical coverage--and for those buying young, certain provisions can keep policies current with inflation. And, in some cases, portions of the premiums may be tax deductible.
An estimated 42% of those who reach 70 will need some form of long term care and those needs are sure to increase as people live longer and longer. The final phase of life, when living with eventually fatal chronic illnesses, has the most intense costs and treatments. While previous generations tended to die suddenly and at home, baby boomers will probably die in hospitals, and will usually spend two or more of their final years disabled enough to need help with routine activities.
What to look for in a policy? You should demand a policy that is portable from state to state, and has a short "elimination period." That period is the equivalent of a deductible--it's the number of days of care, often about 30, for which you will have to cover costs yourself. Also, make sure that your daily benefit is adjusted each year for inflation, a provision known as an escalator.
Source: Reprinted from BARRON'S, 3/22/04