Insuring Against Life's Frailties

Kiplinger's Personal Finance Magazine, July, 1999 by Mary Beth Franklin

Should you buy a long-term-care policy and, if so, when?

When her union offered a newly negotiated benefit to members--long-term-care insurance--Claire Winchester snapped it up. At the time, in 1992, the 41-year-old single mother with a college-age son was a clerk with Nynex Corp. in Bangor, Maine. The offer--at just $20 a month--was a steal. Although Winchester had been diagnosed with multiple sclerosis a few years earlier, the insurance was offered on a guaranteed basis to all eligible employees regardless of their health.

"It turned out to be one of the smartest things I ever did in my lite," says Winchester, now 48. The illness forced her to retire the following year, and today she uses a cane to walk and tires easily. But she has been able to remain in her own home, thanks to her son, who checks in on her regularly; her service dog, Remington, who retrieves items she's dropped; and home health aides who help with household chores and personal care.

Once Winchester started to collect benefits in December 1994, her monthly premiums ceased. In all, she kicked in about $500 for the insurance that has already paid out nearly $20,000 in benefits. The John Hancock policy covers her aides, who spend about three hours with her three days a week at a cost of about $100--a real bargain due largely to the limited help she receives and the low cost of living in her remote northern city. (Nationwide, daily home-care costs average $36,000 a year.) Because multiple sclerosis is a degenerative disease, Winchester may require more help in the future. Her insurance will pay for up to $182,500 of care over her lifetime.

"You think you have your life all planned, and then something happens that you never thought of," says Winchester. The bloodcurdling tales of neighbor and novelist Stephen King pale in comparison to real-life shocks like MS. "It's the bogeyman you never expected that can grab you," she says.

The latest In fringe benefits

LONG-TERM-CARE INSURANCE ISN'T NEW, BUT AS THE recognition of the need for it increases, so does the number of businesses offering group policies to their workers--usually on an employee-pay-all basis. Although only about 6% of the eligible work force has signed up so far, that percentage is sure to change.

Spurred in part by the Clinton administration's proposal to offer long-term-care insurance to federal workers, their spouses and parents, and to federal retirees, the insurance industry is gearing up to expand its group long-term-care market. Jodi Anatole, vice-president of group-employer business at MetLife-LTC Group, thinks the federal initiative, which enjoys strong bipartisan support on Capitol Hill, will increase the visibility of long-term-care insurance. But, she says, frequently it is still a senior corporate executive's personal ordeal with care-giving that prompts a company to offer long-term-care insurance to its employees.

MetLife, which writes group policies for members of AARP, recently captured the business of a coalition of 35 major corporations, led by Mobil Oil. It expects to offer long-term-care insurance to more than 900,000 workers and retirees over the next few years.

Who pays for care?

LIKE THE URBAN MYTH OF ALLIGATORS IN NEW YORK City's sewers, many people believe medicare will pay for their long-term-care if they ever need it. It won't, except for up to 100 days of nursing care following a hospital stay. Long-term care often involves nonmedical help with daily tasks, such as bathing, dressing, and moving from a bed to a chair. Medicare won't pay for that, and neither will your medigap policy or regular health insurance.

Medicaid, the federal-state health care program for the poor, pays more than 40% of all nursing-home bills today, but usually only after an individual becomes impoverished and qualifies for aid. A recent survey shows that nursing-home care costs an average of $51,000 a year--but the price varies widely by state, from a low of about $33,000 in Louisiana to more than $73,000 in Connecticut. The American Council of Life Insurance projects that by 2030, when the tail end of the baby-boomers will retire, the cost of nursing-home care will average about $190,000 a year.

Assisted-living facilities--an increasingly popular housing option for seniors who need help with meals, transportation and some daily tasks but who don't need constant medical supervision--are less costly (averaging about $26,000 a year now) but are generally not covered by medicaid.

Given a choice, most people prefer to receive care in their own homes--another option seldom covered by medicaid. Purchasing long-term-care insurance with the right benefits means you can decide where you will receive care while protecting your life savings. Whether or not your employer offers a group policy, consider whether you're a candidate for this insurance.

Early-bird bargains

BY THE TIME MOST PEOPLE START thinking about long-term-care insurance in their sixties and seventies, the cost may be prohibitive or they may have serious health problems that render them uninsurable. As with most kinds of life insurance, the younger you are, the cheaper it is to buy coverage. Of course, that also means you could be paying premiums for decades before you use the benefits. In most cases, however, you pay less in premiums over your lifetime if you start at a younger age than if you pay a higher premium for fewer years.