By Lisa Zamosky
If you’re concerned about saving enough money for retirement, planning for your possible long-term medical needs is a must. But according to Susan Garland, editor of the recently released Kiplinger’s Retirement Report, “People are tending to overlook long-term health care. The numbers are so astounding that I don’t think people know how to deal with it,” she says.
In 2011, nursing home care cost over $87,000 a year. Yikes!
I spoke with Garland last week about long-term care insurance and its place in retirement planning. She identified six things consumers should know when it comes to covering their health care costs as they age.
1. Beware the changing industry
According to Garland, a number of big insurance companies, including MetLife and Prudential, have stopped selling long-term care plans in the last few years. The companies underestimated the number of people who would eventually file claims, Garland says, making these products less lucrative.
If you have an existing policy with a company that’s stopped selling long-term care, your claims will continue to be paid.
If you’re just entering the market for a long-term care plan, Garland advises people to “stick to major insurers like Genworth, John Hancock, and Mass Mutual Life,” which have been around for a long time and are unlikely to leave the market in years to come.
2. Hang on to what you have
Most major insurers have raised rates for current long-term care policy holders in recent years, making these already expensive products even harder to afford. In response, many people consider dumping their plans. That’s a mistake, Garland says. Dropping your plan now means years of wasted premiums paid with no benefits to show for it.
3. Lower your costs
Instead of dropping your existing long-term care insurance plan, look for ways to lower its cost. Garland suggests asking your insurer for options to keep your premiums where they are. One of the best ways to do that is to cut back on your plan’s benefit period.
For most people, for example, a lifetime benefit is a big waste of money – the average length of stay in a nursing home is about three years. “Instead of a lifetime benefit, maybe cut it back to three to five years to keep the premium down,” Garland advises.
4. Consider other products
Insurers offer other products that may prove to be a better deal and more appropriate for your health care needs. Married couples, for example, should consider a “shared benefit” plan.
“A three-year shared-benefit policy provides a pool of six years of coverage to divvy up between spouses,” the Kiplinger’s Retirement Report says. So, if one spouse needs five years of care and the other needs only needs one, you’re covered. Shared plans are a bit more expensive than two separate plans – about 15% more – but they may go a longer way.
The report also highlights hybrid plans, which combine a long-term care insurance policy with either life insurance or deferred annuity. The idea is that you can use the benefit for long-term care or as a death benefit that pays to your heirs.
Garland also suggests looking into longevity insurance. These products require a small investment of money, usually at around age 65, for a large payout at the age of 85. The payout can be used for long-term care or any other expenses you have at the time.
5. Plan for inflation
Since long-term care is purchased often decades before you use, you need to make sure you’re plan keeps pace with inflation. “The gold standard has been 5% per year,” Garland says.
6. Look for a good agent
Generally, you’ll want to think about buying a long-term care product sometime in your mid-50s, Garland says. But the landscape can be tough to navigate on your own, so it’s a good idea to work with an agent specializing in long-term care insurance.
To find an experienced agent and more information about long-term care insurance, visit the website of the American Association of Long-Term Care Insurance.