No one wants to end up in a nursing home. And at an average price tag of $66,000 a year, who can afford to?
Yet most people also don't want to burden their families. So what is an aging person to do? Buy long-term care insurance, say some.
But a study by Consumer Reports disagrees. According to its review of 47 policies, long-term care insurance is too expensive and too risky for most people. Here's why:
- Insurance agents recommend that you buy a policy when you're younger -- even in your 40s -- because the premiums will be cheaper. Consumer Reports found that a policy that costs a 50-year-old $1,625 will cost a 60-year-old $3,100 and a 70-year-old $7,575. Plus, the longer you wait to apply for a policy, the higher the chances that you'll be turned down for health reasons. However, what insurance agents probably won't tell you is that insurance companies can raise premiums. The study cites CNA Financial, which is trying to hike premiums on existing policies as much as 50%.
- The policies usually don't cover all the expenses. Plus, the benefits paid will cover a small fraction of the costs just a few years later due to inflation. You can get a policy that keeps up with rising costs, but that can quadruple your premiums.
- The average age at which someone enters a nursing home is 83. If you buy a policy when you're 55, you'll pay for almost 30 years before receiving any benefit -- and that's only if the insurance company is still in business.
- As with any insurance policy, you have to meet the insurer's criteria before a benefit will be paid, which might include an exam by the company's own physician. And then there's the infamous runaround. Consumer Reports tells the story of Kathleen Donley, who had to fight Conseco for two months before they would pay the benefits due Donley's father. In the meantime, Donley had to pay for two months' worth of nursing home bills herself.
If you don't have long-term care insurance, you won't end up spending your last days in the street. Most seniors don't need long-term care. And of those that do, the help they need most is with shopping, cleaning, and getting around. That is why the No. 1 source of such care is family and friends, since such help isn't overly burdensome.
If you do end up needing nursing-home care yet can't afford it, the government will pay through Medicaid, but only after you've exhausted all your resources. This also limits your options, and you many not be comfortable relying on Uncle Sam. So if you'd prefer to hedge your bets by purchasing long-term care insurance and gain some peace of mind, Consumer Reports recommends the following criteria:
- Purchase a policy around age 65
- Buy from a strong insurer, as rated by A.M. Best, Moody's
(NYSE:MCO), or Standard and Poor's.
- Choose a 30-day elimination period and four-year benefit.
For more on what to look for in a long-term insurance policy -- and whether you need one -- visit The Motley Fool Insurance Center.