Long-term care insurance costly,
but the care is even more expensive
By Lucy Lazarony • Bankrate.com

Baby boomers looking to ease the financial and health-related concerns of their retired parents may want to consider private long-term care insurance.

These policies, while pricey, help cover the costs associated with assisted living facilities, nursing homes and extended home care. The services they provide become necessary when parents are no longer able to walk, dress or eat on their own.

A tough topic
But before families can contemplate the financial pros and cons of this type of insurance, they must have a clear understanding of their parents' wants and views on the matter. It's a tough topic to talk about.

"No one wants to admit to the possibility that they can become old and frail," says Martin Bayne, publisher of Mr. Long-Term Care, a Web site dedicated to long-term care news and information.

But it's reality. At least 5.8 million people aged 65 or older need long- term care, with one in two seniors over the age of 85 requiring such care.

Bayne urges baby boomers not to delay this important heart-to-heart talk with their parents. It's best to get everything out in the open.

"You say, 'Let's be straight about this. I don't anticipate you or mom will have a stroke, but it happens. How do you want us to handle this? Do you want us to change your diaper? How will you handle it financially? Do you expect me to give up my job?' " Bayne says.

"Some of these things are painful to talk about, but it's essential."

He adds, "Once you accept that it could happen to you, you're halfway home."

Find out what they want
You can also start asking more specific questions that can help give you a better sense of the type of care a parent prefers, and whether long-term care insurance is a good option.

"Do they want to go into an assisted living facility or do they want to stay at home as long as possible?" asks Joe Scinto, a volunteer counselor at United Seniors Health Cooperative, a consumer advocacy group based in Washington, D.C.

"These are very personal concerns. If you're going to buy it for someone else, it really requires a close personal discussion."

With long-term care insurance, a senior pays an annual premium and collects the benefits when he or she can no longer perform aspects of daily living, such as eating, dressing or getting around on their own.

"It gives you some choices you may not have had without the insurance," says Robert Pearson, president of CareQuest, a consulting firm specializing in long-term care planning. "It can make the difference of where you go and where you stay."

Long-term care insurance can give families more flexibility and more choices by covering care options such as community-based programs and home health care. Some policies pay these benefits for two, four or six years. Others last for the duration of a senior's life.

Coverage not for everyone
It's important to realize that long-term care insurance is not for everybody. For one thing, not everyone qualifies. Insurers deny coverage to folks with serious health problems. Twenty-five percent of people aged 65 and older have pre-existing health conditions that would prevent them from receiving private long-term care insurance, according to the Long Term Care Campaign, a consumer coalition based in Washington, D.C.

Plus, this insurance coverage is not cheap. Some folks can't afford it. United Seniors Health Cooperative recommends that seniors have at least $75,000 in assets and an annual income of at least $30,000 a year before they consider buying long-term care insurance.

"Beyond that, those premiums could be a financial hardship," Scinto says.

Jon Dauphine, former executive director of the Long Term Care Campaign, says only about one-third of the senior population in America, folks 65 and older, can afford a satisfactory long-term care insurance policy.

"A 75-year-old could easily spend $5,000 a year for a decent policy," Dauphine says.

The cost of the policy depends on a senior's age and health when they sign on for the insurance and the type of coverage that's selected

Costs rise as parents age
Let's look at the average cost of signing on for a policy that would pay $100 per day toward the cost of a nursing home or community-based or home health care for the duration of a senior's life.

A senior at age 60 selecting this type of policy would pay an average cost of $1,169 a year, according to Weiss Ratings Inc. The price jumps to $1,704 for folks aged 65 and to $2,646 for seniors aged 70.

Consider this. Medicaid pays for 47 percent of nursing home care, but only after families have spent down other assets and resources. Medicare only covers 9 percent of nursing home costs and it only pays for stays of less than 100 days.

Children of seniors need to scrutinize their own financial situations. Can they afford to pay for most or some of the premiums for their parents? These premiums have a way of going up. Will a senior and his or her family be able to pay the premium if it shoots up by 20 percent a few years down the road?

"It would be tragic to pay for a policy for 20 years and to have to drop it because of a financial hardship," Scinto says.

Pick stable insurance providers
Select a policy from an insurer that you trust.

"Make sure you select a financially stable company. You're probably not going to receive proceeds from that company for a number of years. You want to make sure that company is going to be around," Scinto says.

Avoid doing business with a company that offers rock-bottom prices.

"If one company's premium is significantly lower than everybody else's, that should probably be a red flag," says Melissa Gannon, a vice president at Weiss Ratings. "There's something going on there. Maybe their coverage isn't as good or they may be more likely to raise rates."

When comparing policies, be sure to examine the amount of coverage paid per day, the length of the front-end deductible, which is the number of days that you have to pay for care on your own before coverage kicks in, and the length of the coverage.

Be sure to check out a company's inflation protection policies. The average annual cost of nursing home care is expected to increase from $42,000 in 2000 to $80,000 in 2010. With inflation protection, an insurance company will add an extra 5 percent to your daily benefit, compounded annually. So a policy that provides a $100 daily benefit in 2000 would increase to $163 in 2010, according to Weiss Ratings.

The downside is that signing on for inflation protection can bump up the cost of your policy by several hundred dollars or more. Some companies nearly double the cost of premiums when inflation protection is added.

Older seniors may want to pass on this type of protection.

"If you're up in your mid-70s, you're probably not going to be needing much in the way of inflation protection," Scinto says.

Some expenses not covered
Keep in mind even the most comprehensive and pricey long-term care policy will not cover all of a senior's long-term care needs. There's bound to be additional expenses.

"It pays a very limited dollar amount," Pearson says. "It's not a cure-all."

Having a long-term care policy won't help seniors who are healthy, but may need help with housework or cooking or going to the grocery store. How will families handle these situations?

And while baby boomers are looking out for ways to help their parents, they may want to consider how a long-term care policy would fit into their own retirement strategies.

"They're smart to look at it for themselves," says Joy Loverde, author of The Complete Eldercare Planner.

"We baby boomers didn't have the big families that our parents did," she says. "The big question that looms over our minds is: Who's going to take care of us?"

-- Updated: Dec. 1, 2000