Financial Savvy – ‘long-Term Care’

Most people first confront nursing home expenses when one of their parents can no longer live at home. Then comes the sticker shock-in Colorado, the average annual cost of a nursing home is more than $50,000.

To protect your family from this potential expense, you might consider buying long-term care (LTC) insurance. These policies can vary dramatically across insurers, both in coverage and premiums, so it pays to shop around. The policies are long-term in nature, so the premium, which is determined by age and health at the time of the initial contract, will be paid for many years in the future.

Unfortunately, there’s no magic answer to the question of when to buy LTC insurance. When you’re younger, it’s cheaper. But your lifetime cost for the insurance may end up being much higher if you purchase the insurance at too early an age.

For example, a healthy 50-year-old male might be able to get a policy that pays $100 per day for nursing home care at a cost of around $1,000 per year, whereas that same policy will cost $2,000 per year by the time he is 60.  If he waits until age 60, though, he’ll have saved about $10,000 in premium costs; and since the odds of requiring nursing home care between the ages of 50 and 60 are quite low, particularly if home care giving is an option, he may be tempted to delay as long as possible. The risk he runs is that he’ll be incapacitated in the meantime and thus be unable to obtain coverage when he reaches age 60.  

Because LTC insurance is a product that is relatively new, even the insurers are uncertain about future health costs and premiums have been increasing over the last few years. As more insurers enter the market and they get better at estimating LTC costs, prices may fall. This would argue in favor of putting off the purchase of LTC insurance for a few more years, if you’re still under the age of 60 and healthy. However, the American Health Care Association-a federation of 50 state health organizations representing assisted living facilities, nursing facilities, long-term care facilities, and other care providers-suggest that you’ll get the best deal between ages 50 and 55. Current tax law allows you to deduct the cost of the premiums subject to the limits on imposed on itemized medical deductions.

In deciding on a policy, consider the following features:

– Daily Benefit: The benefit per day should correspond to average local costs, less an amount that you can afford to pay out of pocket.

– Inflation Protection:  Since the cost of care has increased faster than inflation, be sure to pay the extra premium for increasing benefit amounts over time.

– Benefit Period:  You probably don’t need to pay the extra premium for a lifetime benefit since the average nursing home stay is less than three years and 75 percent are for less than one year.

– Waiting Period:  LTC insurance typically includes a waiting period of 30, 60, or 100 days of care before the insurer will pay. Because some coverage is available from Medicare for the first 100 days, this is a popular waiting period selection.

– Services Covered:  You can select a policy that covers nursing home care only or one that also pays for home health care providers.

To learn more about LTC insurance and the options that are available to you, go to, the website of the American Council of Life Insurers.

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Vickie Bajtelsmit, Professor of Finance, Colorado State University College of Business,

(970) 226-1473