ASK KIM Lower the Cost of Long-Term Care Insurance by Kimberly Lankford
I'm shopping for long-term care insurance and had hoped to get a policy with a 30-day waiting period and a lifetime benefit period, but I've been shocked by the prices! What can I do to lower the cost?
You probably don't need quite that much coverage, and it's easy to cut the premium in half -- or more -- by shortening the benefit period and extending the waiting period.
It can be quite expensive to buy a long-term care insurance policy with a short waiting period and lifetime benefit period. In fact, John Hancock, one of the largest long-term care insurance companies, would charge a healthy 55-year-old man more than $4,000 per year for a policy with a $150 daily benefit, a 30-day waiting period and lifetime benefit period. If he bought the policy at age 60, he'd pay more than $4,700 per year.
The first step in lowering the premium is figuring out how long of a benefit period you really need.
The average nursing home stay lasts just under three years. Cutting your benefit period from lifetime to three years can lower your premiums significantly. That 55-year-old man with 30-day waiting period on a John Hancock policy would see his premium fall from $4,013 down to $1,822.
Just to be safe in case you end up needing care longer than that, many people opt for a five-year benefit period, which still lowers your premiums a lot -- the 55-year-old above would pay $2,375.
You may still want to pay extra for a lifetime benefit amount if you have a family history of long-lasting diseases, like Alzheimer's.
You can also cut your premiums by extending the waiting period before benefits kick in (called the "elimination period"). Policies range from zero to as much as 365 days.
By extending the waiting period in the example above from 30 to 180 days, our 55-year-old would see his premiums fall from $2,375 to $1,781. But it usually isn't worthwhile to stretch your waiting period that long. If you have a 180-day waiting period and your care costs $150 per day, you'll have to shell out $27,000 yourself before your policy pays a cent. And that's in today's dollars. If the cost of care rises by 5% per year and you don't need long-term care for 20 years, you'll have to pay more than $70,000 from your own pocket before the policy starts to pay out.
Most people opt for a 60- or 90-day waiting period instead, which would cost $2,177 or $1,979 for that 55 year old with the 5-year benefit period, still a manageable price without costing you a lot of your savings before you can start to receive the benefits.
GETTING STARTED
