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Finances » LTC Insurance

Why It's Important

Most Americans have done little to prepare for what could be one of the largest expenses they'll ever face -- their long-term care. Long-term care insurance is for people who need help taking care of themselves after an injury, illness, stroke or disease. While most people think of it simply as moving into a nursing home, it can also include having a healthcare aide come to your home or staying in an assisted living facility.

With the convergence of longer life expectancy, the aging of the Boomers, and the shortage of nurses and children behind them to care for them, Boomers are going to need to be prepared for the fact that many will need substantial medical and non-medical care. In the meantime, adequate health coverage needs to include wellness and prevention and be accessible to all.

Half (47%) of Boomers who have LTCI say they have it because their employer offers it. Among those who don't have LTCI, half say it's because it's either "too costly" or they "don't need it." Only one in ten Boomers (11%) say that it is "very likely" that they will need LCTI at all.

See Data By: Richmond MSA | Virginia | National

How Richmond Is Doing

Almost All Boomers Have Read or Heard the Phrase "Long Term Care" Richmond MSA

How Virginia Is Doing

85 percent of employers say they offer health insurance (ODP BUSINESS LEADER, 2008)
31 percent say they offer long-term care insurance (ODP BUSINESS LEADER, 2008)
28 percent of Boomers in Virginia say they have long-term care insurance (ODP RESIDENT, 2008)

Benefits offered by employers include health and LTCI

Boomers self-reported llikelihood that they will need LTC

Boomers have heard of LTCI

Boomer LTCI

How the U.S. Is Doing

According to a 15 year study by America's Health Insurance Plans, there is a heightened awareness of the need for Long-Term Care Insurance. Here are some additional findings from this study:

In 2005, the single most important reason for purchase was to protect assets.
The proportion of policies that cover both institutional care and home care has grown from 37 percent in 1990 to 90 percent in 2005. Virtually all policies sold in 2005, 97 percent, cover home care.
The average age of individuals who purchase LTC insurance has been getting younger, from 68 years in 1990 to 61 years in 2005. The proportion of buyers younger than 65 has almost tripled from 1990 to 2006.
- "Non-buyers" are somewhat older, and are less likely to be employed, have lower incomes, and have fewer assets than buyers have.
Seventy percent of non-buyers believe that nursing home care costs less than it actually does. In addition, buyers typically perceive the risk of needing nursing home services to be higher than do non-buyers.
Two-thirds of individuals 50 and over are aware of companies that offer LTC insurance, up from just two in five in 1995.
Non-buyers are twice as likely to believe that "the government will pay for most of the costs of LTC, if services are ever needed" than purchasers of LTC. Individuals age 50 and over from the general population were most likely to believe that the government will pay for LTC.
While individuals who forgo purchase of an LTC policy continue to cite cost as the most significant barrier to purchase, they also cite lack of understanding about the need for LTC, confusion about what the government covers, and lack of knowledge about LTC companies and products.
For the most part, people do not decide to purchase LTC coverage on their own. In addition to the insurance agent, other people contribute to the discussion. Spouses, followed by agents and financial planners, were cited as having the most influence on the decision. Only rarely do adult children take an active role in the purchase decision.
The agent's recommendation and the insurer's reputation are the reasons most often cited for the purchase of a particular company's policy. They also believed that agents recommended the policies best suited to their needs. Few in the survey used the Internet to gather information during their decision making process. Those who did used it to gather information about LTC in general and to decide what coverage to purchase, not to find an agent.

(AHCI, WHO BUYS LTC INSURANCE, 2007)

A Consumer Reports investigation revealed the following:

Premiums must be continually paid to keep it in force.
If premiums rise, the coverage may have to be dropped, and the insured will possibly lose everything that they paid.
The policy's benefits may cover only a portion of the total expense.
Many policies are packed with catches that can keep the insured from collecting.
Finally, there's no guarantee that long-term-care insurers, some of which have weak balance sheets, will be around 20, 30, or 40 years from now when they are needed to pay.
Drugs, supplies and special services, which aren't covered, add 20 percent or more to the bill.
Then comes inflation. Between 2004 and 2008, nursing-home costs are projected to rise by 5.6 percent a year, and 5.9 percent for four years after that, according to the Centers for Medicare & Medicaid Services.
Policies generally pay only a portion of the daily benefit--older policies paid just 50 percent--for home care.

(CONSUMER REPORTS.COM, 2003)

According to the 2007 AARP LTC Insurance Factsheet:

The average annual cost for nursing care is $67,000. Assisted living facilities typically cost $35,000 per year.
In 2005, 7 million LTCI policies existed; most policies cover a range of services and settings.
Cost is the biggest deterrent to purchasing LTCI. Rates start at $1,800 per year and can exceed $2,600 per year.

(AARP PPI, Long-Term Care Insurance Fact Sheet, 2007)