August 16, 2014|Brent Hunsberger, The Oregonian
Lowell Serfling bought long-term care insurance a dozen years ago at his dying wife’s suggestion and paid $150 a month for it – until earlier this year. That’s when State Farm informed him that his premium would jump to an extra $60.
“I am on a fixed income and cannot afford this large increase,” Serfling said at the time. So he dropped the policy, giving up more than $20,000 in premiums he’d paid the company. He now hopes a debilitating illness that took his late wife’s life doesn’t strike him, too.
“That’s ugly,” the Sherwood resident said of the rate increase. “People before they buy it need to be made aware the company can do that.”
Increasingly, people are. Rates have been rising on new and existing policies for several years. And sales of new individual long-term care insurance policies fell 26 percent between 2012 and 2013, according to LIMRA, a financial-services research firm.
What’s more, insurers are rejecting applicants 60 and older at higher rates, probing more deeply into people’s health histories and refusing to insure individuals with previous or current issues.
But the need for end-of-life care hasn’t diminished, and costs continue to increase. A few other options exist for those who can’t get, or can’t afford, traditional long-term care insurance.
I wrote about two of them last year — life insurance and annuities sold with long-term care insurance riders. This week I’ll explore a couple other alternatives – multi-life, short-term care and critical-care insurance. While they might be worth inquiring about, they’re certainly not an ideal substitute.
“Long-term care is still a very viable product,” said Becky Wehrli, a Portland-area insurance broker. “I would say in most cases, depending upon what the customer is trying to achieve, a traditional long-term care insurance policy is going to give them the best value.”
But not everyone needs insurance for end-of-life care. You might be able to rely on family for care. You might be able to afford a continuing care retirement community that provides independent, assisted and skilled-nursing living through the end of your life. You might be able to rely on your own assets or a reverse mortgage if you save and invest responsibly, though it’s tough to predict how much you’ll need.
“Many people can self-insure a reasonable amount by investing what they would pay for premiums,” said Shawn Koch, a certified financial planner in Portland. “And many people need assistance before becoming eligible under these policies, so long-term care insurance shouldn’t be seen as a panacea.”
Multi-life long-term care insurance
With sales of new long-term care policies slumping, some insurers and brokers are pushing policies in the workplace. This gives them the advantage of a captive audience, a bit of peer pressure and having premiums paid by payroll deduction – which makes them less apparent as an expense.
Employees will be better off ensuring they’re getting a multi-life long-term care policy instead of a pure group long-term care insurance, says Portland insurance broker Diane Steeves.
Group policies are sold in a cookie-cutter fashion, usually with no options to add on inflation-adjusted benefits or other measures designed to protect the consumer. They often aren’t regulated by the state in which they’re sold, which might mean fewer protections for consumers if they have trouble claiming benefits. Multi-life policies, in contrast, are regulated by the state of Oregon and their benefits can be more individually tailored, Steeves said.
Pros: Underwriting is not as thorough, which means workers with health issues stand a better chance of getting approved. Sometimes, employers foot the costs.
Cons: For the healthiest workers, premiums might be somewhat more expensive than an individual policy purchased on the commercial market through a broker.
Short-term care insurance
Also known as convalescent insurance, these policies offer between $50 and $300 a day of coverage for 180- 270- or 360-days.
Pros: They’re less expensive, and applications don’t probe as deeply into medical histories. “If you had somebody with health issues, very often they can get coverage,” Wehrli said. Policies have short or no waiting periods, meaning benefits often can start immediately.
Benefits usually reset, meaning if you file a claim but recover before your entire benefit is exhausted, you can file another claim in the future and get coverage. Insurers issue policies up to ages 79 or 85, Steeves said.
Cons: Most benefits don’t last more than 360 days. They cover “home health care” provided by a doctor or licensed caregiver but not “home care” provided by an unlicensed, personal caregiver who helps with bathing, eating, dressing and other activities of daily living. Some policies also don’t cover stays in assisted-living centers.
The Short-Term Care Association itself says on its website that the product is not a substitute for long-term care insurance, which offers a wider array of coverage for longer periods. And remember, Medicare will usually cover post-hospitalization rehab stays at a nursing home for up to 20 days at no cost.
“I view the role of insurance as a mechanism for protecting against financial losses that we cannot recover from,” said Joseph Alfonso, certified financial planner at Aegis Financial Advisory in Lake Oswego. “I do not see short-term care (insurance) as rising to that level.”
Critical-care or critical-illness insurance
Normally, these policies pay lump-sum cash benefits when you’re diagnosed with cancer, stroke, a heart attack and a few other serious illnesses. But at least two carriers – Aflac and Guaranteed Trust Life Insurance Co. — offer policies with daily or monthly benefits for inpatient rehab stays and continuing care. Aflac’s daily benefits are available for up to 6 months; GTL’s monthly benefits are available for up to 2 years.
Pros: Policies usually reset or offer some form of restoration of benefits. That means if you file a claim, you can file another claim in the future after a treatment-free period. They’re also less expensive than long-term care. A 60-year-old nonsmoking female might get coverage for a $50,000 lump sum cash benefit for about $100 a month, according to the American Association for Critical Illness Insurance. A GTL policy providing $2,000 a month benefit for up to 2 years can cost a 50-year-old about $110 a month, said Mike Anderson, an insurance wholesaler for American Independent Marketing.
Cons: The benefits likely won’t cover the full cost of an assisted-living or nursing-home stay. Inflation adjustments aren’t available, meaning your benefit will decline in value over time. Many policies reduce certain benefits after age 65 or 70. Aflac’s covers only continuing care and therapy provided by a licensed physician, according to its brochure. And you can’t buy coverage for a condition that you’ve been diagnosed with in the past. So a heart-attack survivor can insure against cancer but not a heart attack.
The bottom line
With all these changes in the market, the earlier you talk seriously about long-term care with your mate and family, the more accessible the solution will be. Just budget for premium increases along the way.
“I suggest clients consider getting long-term care insurance in their late 50’s,” said Andy Tilp, a certified financial planner with Trillium Valley Financial Planning in Sherwood. “The underwriting criteria is getting harder. … Costs are rising dramatically and policy benefits are getting lighter.”
This article originally appeared in the Its Only Money blog of the Oregonian.