Retirement Planning 2015
T ricia Baker rues the day, some 25 years ago, when her
parents were talked out of buying long-term care insurance.
Today, these elderly parents, who have dementia, live in an
assisted living facility that costs $8,000 a month.
But after their money runs out, they'll have to go on
Medicaid, says Baker, of Greenville, N.C. "They'll probably have
to move somewhere not as nice, since their facility doesn't
To help avoid such sorry sagas, Baker believes "everybody
should have long-term care insurance (LTCI) if they can afford
Or should they?
That quandary comes as ever more baby boomers reach their 60s
and have to consider that they may need long-term care. But data
show few people rushing to buy LTCI as part of their
. And now, in controversial reports, Boston College's Center for
Retirement Research (
) is lowering its boom.
In a November brief, the CRR deemed LTCI "optimal" for only
about 20%-to-30% of unmarried individuals. While the "risk of
needing a nursing home is higher than some researchers previously
thought, average nursing home stays are shorter, and thus, less
costly," explains CRR senior research economist Anthony Webb.
What's more, Medicaid often kicks in if long-term care patients
run out of funds.
And the CRR's view -- that LTCI is often not cost-effective --
doesn't just apply to singles: In a report due out in March, the
CRR will explain why this insurance also "may not make sense for
most married couples," Webb says.
But even as LTCI proponents sharply disagree with the CRR,
data does show flagging interest in traditional LTCI. According
to LIMRA, a worldwide research firm, sales of individual LTCI
policies slid an average annual 6.9% between 2004 and 2013.
Experts cite such deterrents as policy rate hikes, a weak
economy, insurers exiting the business and a general reluctance
to buy the product.
Among consumers' concerns: LTCI is widely deemed expensive.
The average premium cost for what's dubbed "best coverage" for a
couple aged 60 is about $3,840 a year, according to the American
Association of Long-Term Care Insurance. Premiums can rise. And
policyholders could be paying premiums for years -- even after
and live on a more fixed income -- without knowing if they'll
ever use the coverage.
Indeed, "Few of my clients have ever had any significant
amount of long-term care," says financial adviser Paul Ruedi, of
Champaign, Ill. "If they have needed this care, most of my
clients, who are affluent or semi-affluent, self-funded it."
He feels LTCI might be advisable for those with $250,000 to
$750,000 of assets, who want to
but have a family history of longevity with long-term care
But government data show 70% of those turning 65 will need
long-term care at some point. Having LTCI, its proponents say,
can provide important benefits to both patients and their
families. For instance, policyholders could expect that they
wouldn't be bankrupted by care costs. They could better afford
professional home care, instead of burdening their families with
their care, and they could
preserve assets for heirs
And if they don't drain their funds -- and have to use
Medicaid -- on care costs, they'll likely have more choices about
how and where to get care. Some nursing homes don't accept
Care At Home
And as for the CRR's views on LTCI: proponents of the
insurance widely and sharply disagree. To Tobe Gerard, who
specializes in selling LTCI, the CRR's findings are "dated,"
especially given the studies' focus on nursing home care. "Today,
LTCI is really about care at home. That's where most people want
to receive care," points out Gerard, of Natick, Mass.
Says the CRR's Webb: While the Center's data do focus on the
use of care in nursing homes, "our estimates of the value of LTCI
also take into account home health care and stays in assisted
To financial adviser Steve Samuel, everybody should plan for
what they would do if they needed long-term care. And LTCI should
be one consideration. "People with assets of at least $250,000
likely have enough money to afford an LTCI policy worth buying.
And it could help them
stay in their home longer
if they need care," says Samuel, of Dedham, Mass.
Other options include transferring assets to, say, family
members so that Medicaid requirements can be met. Self-insuring
using a reserve fund is another way to go.
Or, if consumers do want insurance, there's a newer variation:
hybrid-LTCI plans, which are surging in popularity, according to
These hybrid offerings are life insurance or annuity-based
products with an LTCI rider. The most popular kind are the
single-payment (say, a one-time $100,000 outlay) life insurance
policies that provide LTCI if it's needed. If it's not, the
premium isn't just wasted: the policy can provide a death
benefit, or the premium can be returned to the policyholder.
Likely candidates: Those who can afford a large one-time