Many people make health and long-term care insurance decisions in their 50s and 60s. The availability and cost of health insurance is a key factor when retiring prior to eligibility for Medicare at age 65. About a third of early retirees have employer-sponsored coverage. Others must find coverage on their own or be married to someone with health benefits. Going without insurance in later life should not be considered an “option,” for several reasons. First, medical expenses and the incidence of life-threatening diseases generally increase with age. Second, it’s a big gamble. About half of all personal bankruptcies are associated with unpaid medical bills. One way to lower health insurance costs is to purchase a high-deductible plan. Eligible workers who lose their job or choose to leave are also entitled to 18 months of continued group health insurance under a federal law called COBRA.
With longer average life expectancies, the cost of long-term care is another major financial risk. The term “long-term care” refers to a wide range of services including assistance at home with daily activities to care in a nursing home. The risk of long-term care can be dealt with in three ways: retain it (self-insuring if you have a high net worth), avoid it (trying to stay healthy but, unfortunately, there are no guarantees), or transfer it (i.e., paying an insurance company to handle the risk). The best time to buy a policy is generally age 55 to 60. If you wait too long, premiums increase significantly and/or you could become uninsurable through some type of medical diagnosis. Premiums are lower in your 40s or early 50s but you could be paying them for a long time before coverage is needed.
The longer the benefit period, the higher the policy benefit, and the shorter the elimination period, the higher the cost. Compound interest inflation riders cost more than simple inflation riders because they result in higher benefits over time.
Use the worksheet below to list the cost and features of three different long-term care (LTC) insurance policies. Then compare the three providers to determine the best policy for you.
|LTC Policy Feature||LTC Policy Provider #1||LTC Policy Provider #2||LTC Policy Provider #3|
|Services covered (e.g., home care, adult day care, custodial care, etc.)|
|Amount of daily benefit|
|Length of coverage|
|Requirement for coverage (e.g., number of ADLs)|
|Additional features (e.g., premium waiver after 90 days of coverage)|
Activities of Daily Living (ADLs)- Common daily tasks (e.g., eating) that, when they are unable to be performed, can serve as a “trigger” to obtain benefits from a long-term care insurance policy.
COBRA- An acronym for the Consolidated Omnibus Reconciliation Act, a 1986 law that provides workers in companies with 20 or more employees an option to purchase continued health insurance upon separation from an employer.
Elimination Period- The number of days (e.g., 90 days), starting from the date of an insurable event, before benefits are paid on certain types of insurance policies (e.g., disability and long-term care).
Guaranteed Renewable- An insurance policy that will continue for life or until a certain specified age, assuming no lapse in premium payments. Premiums will not increase unless they are raised for everyone with the same type of policy.
Long-Term Care Insurance- Type of insurance that covers the cost of support services (e.g., home health care and nursing home care) when someone is unable to perform basic activities of daily living.
Noncancellable- An insurance policy that will continue for life or a certain age, without an increase in cost, assuming no lapse in premium payments.
State Health Insurance Assistance Program (SHIP)- A state-run program that provides free information and counseling about senior health insurance issues. Information about the State Health Insurance Assistance Program (SHIP) can be found at www.state.nj.us/health/senior/ship.shtml.
Search This Site: