Most people avoid the subject of growing old. Planning to need help with basic activities of daily living like eating and getting around isn’t exactly a pleasant conversation, but as Americans live longer each year, it has become a necessary one.
When we plan for our futures, we tend to focus on certain things: our future car, our future house, our future job. Something not usually included in that planning is our future health care, though with the rising cost of medical services, it should be at the top of the list.
Don’t Wait to Plan
Our refusal to plan isn’t theoretical; it’s reflected in data year after year.
People shopping for a long term care insurance policy will notice that there are a lot of different choices, many of which can be confusing to those who have never dealt with this type of policy before. One option in particular, the Guaranteed Purchase Option, is often offered as a rider, but young buyers should stay away from this rider to avoid future financial disaster.
NBC News highlighted a study this week that points out a potential link between increased prescription drug use among baby boomers and the potential for higher rates of Alzheimers and other brain-related cognitive disorders. The findings are used to surmise that Americans are researching, and buying, Long Term Care Insurance policies at younger ages than ever.
A new report from Genworth (via NY Times) reports that Long Term Care costs are rising, but with a bit of a twist. There’s an emerging disparity between the growth rate in facility care costs and the growth rate in home health care costs.
Long Term Care Insurance policies have been sold since 1974 in some form or another. Coverage for Long Term Care was not ubiquitous, however, until 1996. Until the mid-2000s, many insurance companies could honestly claim that they had never raised their LTC policy rates in history.
By any metric, Americans are under-insured when it comes to Long Term Care coverage. Long Term Care planning is of growing concern in the larger healthcare debate as baby-boomers race towards retirement. Ultimately, social scientists expect a dramatic increase in the need for Long Term Care services at a national level, and on an unprecedented scale.
The short version, no math:
If you’re 70-75 years old, and think you may use your Long Term Care Insurance plan in the next 10-15 years, 5% Equal or 5% Simple Inflation Protection may be the best option for you. On the other hand: If you’re under 70, in almost every case, 5% Compound Inflation Protection will give you better value.
The math: Why Compound is superior.
In earnings reports and a follow-on conference call this morning, Genworth Financial continued their announcements of rate increases to come on new and existing Long Term Care policyholders. They specifically outlined policies sold in the generation before 2003 as more troublesome, while policies sold since 2003 are profitable.
Two years ago, a client reached out for some LTC Insurance quotes. The plan she wanted for her husband and herself was simple enough:
Three year benefit
5% Compound Automatic inflation protection
In 2010, we came up with a premium of $1,863 for Genworth and $2,192 for John Hancock.
They are residents of Wisconsin, and at the time they were 53 and 52.