insurance

6 ways to save on long-term care insurance

Young nurse old lady reviewing documents © Miriam Dörr / Fotolia
Highlights
  • A trade group says a long-term care policy can cost more than $1,700 a year.
  • There can be huge differences in prices for long-term care insurance.
  • Today's record-low interest rates are one reason for skyrocketing premiums.

As we live longer and longer, it becomes more and more likely we'll become sick or disabled enough to require long-term care, either at home or at a facility such as an assisted living center or nursing home. At the same time, long-term care insurance is becoming more and more expensive, and it can seem daunting to find a policy at the right price.

According to a survey from the American Association for Long-Term Care Insurance, premiums increased by as much as 17 percent from 2011 to 2012, meaning that a typical individual policy that carried an annual price tag of $1,480 in 2011 now costs $1,720. The association's executive director Jesse Slome says premiums have gone up by as much as 50 percent compared to five years ago, pushing the cost beyond many budgets.

The reasons long-term care insurance costs keep increasing are twofold. The cost of long-term care itself has skyrocketed, so a person who would have needed about $100 a day in long-term care insurance coverage 10 years ago needs to double that now, says financial planner Tom Hebrank, founder of Advanced Planning Solutions in Marietta, Ga. On top of that, record-low interest rates have hurt profits for insurance companies, which are heavily invested in bonds. So, insurers have been forced to raise the premiums they charge for coverage.

Despite the challenges, experts say you can buy long-term care insurance that will protect you and won't completely break the bank. Here are six strategies to save.

Shop around for a lower rate

Consumers should be aware that prices for the insurance policies can vary widely from one carrier to another, says Slome. The survey done by his Westlake Village, Calif.-based trade group found that in some cases, the price difference was as wide as 132 percent. Slome says the plans are exactly the same but some insurers charge more than others, so shopping around is the first step if you want to spend less on long-term care insurance.

Streamline your coverage

With auto insurance, you can pay less by dropping some types of coverage, such as collision. In a similar fashion, you can cut the cost of long-term care insurance by streamlining your policy.

For example, long-term care insurance can offer options to protect against inflation, so that the policy you buy today will keep up with the rising costs of care. If you believe your income and savings will be able to handle the cost increases, Hebrank says eliminating inflation protection from your long-term care policy can cut the premium in half.

Be willing to move

Another way to lower your coverage costs: Plan to go to a cheaper area if you need care. Maybe you live in New York, where health care costs are high, but your children reside in Georgia, where care costs less. Hebrank says you can decide that you will travel to Georgia if you need long-term care and buy an insurance policy offering a lower daily benefit. "If you cut your daily benefit in half, then generally you cut the price of the policy in half," says Hebrank.

Pass on a lifetime policy

Reducing the possible length of your long-term insurance benefits also can save you big.

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Insurance to cover long-term care, such as in a nursing home, is already notoriously expensive and is getting costlier all the time. There are at least a few ways you can make that coverage a little more affordable.

A survey from the American Association for Long-Term Care Insurance found that premiums increased by up to 17 percent in 2012, to more than $1,700 per year for a typical individual long-term care policy.

One way to save is by shopping around, because the survey also found similar plans can have big price differences. You might also go for a stripped-down policy without extras, such as inflation protection.

Instead of opting for a lifetime plan, go for a less expensive one that would pay for five years of care or less. The government says long-term care is used just three years, on average. And, buy a policy long before you're likely to need it, because long-term care insurance is much more affordable when you're younger and healthier.

A policy that would pay for up to five years of care will save you as much as 27 percent annually compared to an unlimited plan, while a policy that pays for three years would save as much as 39 percent, Slome says. Long-term care is used an average of three years, according to the U.S. Department of Health and Human Services.

Married couples can save through what is known in the industry as a "shared care plan." For example, if each spouse buys a three-year plan, they can share the six years of coverage. One spouse may need two years of care, leaving four years of coverage for the other. If one dies, the benefits carry over to the surviving spouse, says Slome.

Extend the waiting period

In the same way that health insurance premiums can be reduced with a high deductible, long-term care insurance can allow you to enjoy a lower rate by opting for a longer period of paying the bills on your own before your coverage kicks in. While the majority of people get long-term insurance with a 90-day wait (also called an "elimination period"), you'll pay less each month if you can go longer. The size of your savings will vary from carrier to carrier, says Hebrank.

Get it while you're younger

When it comes to long-term care insurance, there's one glaring catch. You probably won't need the coverage until you are older, but wait too long to buy it and you will pay a fortune -- if you are even eligible at all. The older you are, the greater likelihood that your health will suffer, increasing the chance that an insurer could reject you outright because of pre-existing conditions. That's why experts say to consider buying coverage beginning in your early 50s.

"It's much more affordable the younger you are and the healthier you are," says Sara Polinsky, a Sherman Oaks, Calif., estate planning and elder law attorney. She adds that many children of her elder clients take a look at how expensive long-term insurance is for parents who procrastinated "and then turn right around and buy long-term care insurance so they don't have to worry about it as they get older."

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