It’s a lesson many are learning the expensive way.
Name something you should buy even though it’s expensive, the monthly cost might go up unexpectedly — and, to top it off, you might never need it. The answer’s easy: It’s long-term care insurance. Why should you buy and keep it despite the high cost? Because without it, the cost of long-term care could severely impact your ability to retire comfortably.
About 70% of those who reach age 65 will eventually need some kind of long-term care, experts say. But new research shows that a third of seniors who buy the coverage allow it to lapse — thereby forfeiting benefits they paid for — just as they are about to be eligible to collect. About a third of 65-year-old men with long-term care coverage let their policies lapse; even more women do (38%), according to the Center for Retirement Research at Boston College. And in 23% of cases studied, those who allowed their policies to lapse did so within four years of needing long-term care. Ouch.
Why the high lapse rate? Researchers say some policyholders run into financial hardship and cut this expense, while others develop cognitive impairment and forget the importance of the coverage or simply forget to pay the premiums.
The incidence of long-term care insurance policy lapses is lower in families where grown children help with financial decisions, researchers found. And fewer people today are allowing their benefits to lapse than the number who did so 20 years ago, reflecting a better understanding of coverage and why it’s needed. If you have aging parents, make sure they have long-term care insurance — and ensure they pay the premiums so their policies don’t lapse.
How much does long-term care cost today? Here are the 2015 median annual costs of various levels of service, according to Genworth Financial:
- Private room in a nursing home $91,250 ($136,437 in New York)
- Semiprivate nursing home $80,300
- One-bedroom unit in assisted-living facility $43,200
- Home health care aide $45,260
- Homemaker services $44,616
- Adult day health care $45,260
Medicare doesn’t pay for custodial care or for long-term care past 100 days. And Medicaid doesn’t cover costs until you’ve exhausted nearly all your other resources. That’s why long-term care insurance is so important.
Finally, consider long-term care insurance for yourself and your spouse. And do it now. Premiums will only grow higher the longer you wait. You’re likely to need it at some point, and when that time comes you’ll be glad you acted now.