In 2010, the top 10 American long-term-care insurers paid out $11 million per day -- $4 billion for the entire year. The industry may be experiencing a little turbulence now, but don't let that keep you from jumping into this pool of funds.
Tough times for insurers
One of the industry's key problems also vexes many Americans these days: rising health care costs. That $11 million daily payout is more than 50% higher than it was just three years earlier, making it uncomfortable for many insurers to meet their obligations. Other challenges include a rising number of claims and low interest rates, which limit investment income for insurers. Thus, some, such as Manulife Financial's John Hancock division and Genworth Financial, are seeking big double-digit rate hikes, while others, such as MetLife, have ceased writing new policies.
The industry won't go away, though; as long as policies are priced correctly, there's money to be made in it. And we consumers need to consider that the price of long-term-care insurance can be steep -- but only because there's a good chance you'll need it. If it were a long shot, the price would be lower.
The U.S. Department of Health and Human Services has noted that at least 70% of those over 65 will require some long-term care at some point in their lives -- care that Medicare and conventional health insurance plans doesn't cover. On average, people who need such care need it for about three years, and about 40% of those over 65 will spend some time in a nursing home.
Long-term-care insurance can be a lifesaver if you're faced with having to pay for in-home help or nursing-home expenses. In-home help averages $21 per hour, or $168 for an eight-hour day. Assisted-living costs approach $40,000 per year, on average. A private nursing-home room averages $229 daily, or $83,000 per year (though it varies widely by where you live). The right long-term-care policy can cover most or even all of these expenses.
The odds of a house fire are about 1 in 263, making it much less likely than your needing long-term care. Yet we all buy home insurance, while too many of us forgo long-term-care insurance.
How to find discounts
The average annual premium for the 7 million policies in force today is about $2,100 -- but you may be able to pay much less. For one thing, consider getting coverage that will last up to three years, instead of as long as you need it. That will lower your cost without endangering your future, since the average claim spans less than three years. You may be able to add to your savings by allowing a waiting period (say, 90 days) before you begin using the benefit when it's needed.
In addition, consider buying sooner rather than later. Prices offered to those in their 50s are far lower than those in their 70s. (The older you get, the more likely you'll be to develop a medical condition that leads to your being denied coverage.) Good health can also earn you a discounted rate for your policy, and you'll likely keep that discount even if your health deteriorates later.
You can save money by shopping around, too. Different insurers will offer different rates, and even top-rated ones can vary widely.
Do be sure you get your policy from an insurer with a solid rating, lest the folks to whom you've been diligently paying premiums suddenly go out of business. Consider adding an inflation-adjustment rider, as well, especially if you're buying your policy while you're still young. It will add to the price of your policy, but will likely be well worth the extra expense.
You may want to discuss the issue with a financial planner, who can look at your big picture and help determine what your needs and resources are. But once you're set to buy long-term-care insurance, don't put it off long. The older you get, the higher your cost will be.
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.