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Daniel T. Murray Blog: long-term

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Health care costs are a big concern for people going into retirement, but the costs of long-term care can still be a shock.

Here are a few facts:

• 70% of people over 65 will need some form of long-term care at some point.

• For married couples, the chance that one spouse will need long-term care rises to 91%.

• People living alone are more likely to need some sort of home health care.

• Women outlive men, and thus, are more likely to live alone and need some sort of home health care.

So, while some financial planners previously were on the fence about long-term care insurance, they were still encouraging people to at least have a plan for long-term care.

"For Baby Boomers, long-term care insurance is a must," says Manhattan attorney Ann-Margaret Carrozza. "We can no longer rely upon Medicaid to cover custodial type care. We see over the course of the past few years that eligibility for Medicaid has gotten tougher. In 2006 the so-called look-back period was extended from three years to five years," she says. During that period, the government can check, or look back, to see if you have sheltered or given away assets — and if you have, it triggers a penalty period when you're ineligible for government aid.

"There are now proposals in Congress to increase it to 10 years," Carrozza says. And, she warns, Medicare only covers up to 100 days of rehabilitation following hospitalization. "Beyond that — nothing!"

The Employee Benefit Research Institute says the average retirement shortfall for Baby Boomers and Gen Xers is nearly $50,000. But that rises dramatically when expenses for home health care or nursing homes are added: for married households by $25,317; single males, an average increase of $32,433; and by $46,425 for single females.

No wonder so many people are worried that they won't have enough money to even cover health care costs in retirement, let alone make it through retirement in the lifestyle they are accustomed to.

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Posted 3:53 PM  View Comments


Having insurance is a lot like carrying an umbrella with you at all times: Most of the time it feels burdensome, but boy, are you glad to have it when the rain comes.

The right insurance policies are key to a healthy financial life. Below, we've explained briefly which those are, plus when you should purchase them.

Keep in mind that insurance policies are largely personal. Everyone's situation and needs are different, and as your life changes (say, you get a new job or have a baby) so should your coverage.

One of the best things you can do to get the best coverage for your needs is to educate yourself: Get multiple quotes, read your policy closely before signing on, and don't hesitate to ask questions when you don't understand.

Also note that while the policies below are arranged by age, of course they aren't all set in stone. If you become a homeowner in your 40s instead of your 30s, for example, that's when the need for homeowner's insurance will kick in.

Here's a brief overview of the policies you need and when you need them:

In Your 20s

Health insurance. While the Affordable Care Act has brought health insurance to the headlines, the simple fact remains that for most of us, healthcare in the U.S. is impossible to afford without insurance. (Not to mention that under the ACA, you usually have to pay a fine if you go without coverage.) Under the law, children can stay on their parents' policies until age 26. If that's you, you'll need coverage immediately after that period. If you have a job, you can usually obtain it through your employer.

You'll stop needing it: Never.

Auto insurance (when you get a car). There were over 5.6 million accidents in 2012, according to the National Highway Traffic Safety administration. If you have a car, you need auto insurance. Insurance rates vary according to everything from who is driving the car (like your teenager) to your driving history.

You'll stop needing it: When you no longer own a car.

Disability insurance (when you get a job). Disability insurance is meant to provide income should you be disabled and unable to work. It's estimated by the Social Security Administration that over 25% of today's 20-year-olds will be disabled before retirement.

If you're relying on your income to live, you should have disability insurance. Most people who are traditionally employed should be able to secure a policy through their employer, while people who are self-employed will have to take out an individual policy. Some people may prefer the increased coverage provided by buying private policies to supplement those from their employers. This is even more important if you have dependents relying on your income.

You'll stop needing it: Once you exit the working world around age 65, which is often the end of the longest policy you can buy.

Renter's insurance (when you rent your own place). Renter's insurance, while not a baseline requirement like health or auto insurance, is something any renter will be glad to have in the case of a fire, leak, or storm. While policies differ, they're generally low cost (think $30 a month) and cover costs including the replacement of your personal property as well as a temporary living situation should you be unable to occupy your rented home. Note that, if needed, you can usually add coverage to this policy for an engagement ring.

You'll stop needing it: When you stop renting.

In Your 30s

Life insurance (when you get married and/or have children). Life insurance, like disability insurance, is meant to replace your income for those relying on it should something go terribly wrong. There's one situation in which pretty much everyone agrees some type of life insurance is a good idea: When you have dependents, such as minor children or a spouse who doesn't work.

You can calculate your coverage needs at lifehappens.org. Again, many people will be able to get coverage through their employers, but not always as much as they need. Some experts recommend replacing up to 10 times your annual income.

You'll stop needing it: When your dependents are no longer relying on you for financial support. For that reason, term life insurance (a policy that only covers you for a set amount of years) tends to be a better fit for many parents, whose kids will grow up and become financially independent.

Homeowner's insurance (when you buy your own place). This is one of those non-negotiables: If you own a home, you need homeowner's insurance, which should cover everything from the structure itself to your belongings to liability should someone be injured on your property. Note that if you live in an area of the country that's subject to flooding, earthquakes, or other natural disasters, you may need to purchase additional coverage that isn't included in your primary policy.

You'll stop needing it: If you sell your home and go back to renting, or make other living arrangements.

Pet insurance (if you have a pet). Pet insurance isn't necessarily a must-have, but if you're the type to shell out $8,000 for your dog's surgery, it might be worth considering. Some plans even cover routine vet visits and vaccinations, and most will reimburse 80-90% of your vet bills for a premium that ranges from about $100-$300 per year.

You'll stop needing it: When you no longer own a pet.

In Your 40s

Long-term care insurance. Long-term care insurance is exactly what it sounds like: It covers care for people who are aging or disabled and need help with daily living, whether that means a nursing home or an attendant. This is the sort of thing people don't think about until they get older and realize this might be a reality for them, but of course, as you get older you get more expensive to insure. That's why it's a good idea to start looking at long-term care insurance well before you need it. Bankrate.com has a great explanation of how shopping sooner rather than later can save you money.

You'll stop needing it: Never.

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Should you buy inflation protection for long-term care insurance? Absolutely. In fact, if you don’t think you can afford that extra coverage, you should probably rethink whether you should buy the insurance at all.

The issue of inflation protection was just one of the subjects that I, along with financial adviser Michael Kitces and insurance industry spokesman Jesse Slome, discussed on a Wall Street Journal webcast on Monday. The Journal’s Anne Tergesen wrote a nice article this week that also touched on the inflation issue.

There is a reasonable debate about how much additional coverage you should buy, but there is no doubt that nearly everyone should buy some. Here are just some reasons why:

Typically, buyers of long-term care insurance are in their 50s or early 60s. But you probably won’t need substantial help with daily living until you are in your 80s. That means the cost of long-term services and supports—whether you receive care at home, in a nursing home, or in some other setting–will rise year after year for thirty years before you ever collect benefits.

As a result, what looks like a pretty good benefit today will be worth far less when you eventually make a claim.

How much less? Say you buy a three year policy that promises to pay $150-a-day (a bit more generous than a typical policy). Today, according to the latest survey of long-term care costs by ltc insurer Genworth, a private room in a nursing home averages $240-a-day, or nearly $88,000-a-year. Your $150-a-day policy would cover 58 percent of the cost and you’ll pick up the additional $90 out of savings or retirement income.

That might be manageable. But if inflation averages 3 percent a year (the long-term average for the overall economy), in 30 years the purchasing power of that $150 will shrink to less than $62. Or to put it another way, that $240 daily cost of a nursing home bed would increase to $582. However you prefer to think about it, your insurance would cover only about one-quarter of your daily costs instead of nearly 60 percent.

It is true that inflation will also increase the size of your nest egg (in nominal dollars), but will you have the resources to pick up the difference?

Of course, there is no way to predict increases in long-term care costs over the next 30 years. The Genworth study and others like it provide some useful information but also can be misleading.

Here’s one problem: Genworth reports that the median cost for that private nursing home room increased by an annual average of 4.19 percent over the past five years. But that was a period when we were slowly climbing out of the worst recession since the 1920s and many measures of inflation, including labor costs, remained stagnant. Thus, I’d be very careful about using the last five years to predict the next 30.

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Posted 11:05 AM  View Comments


In recent months, major insurers have adopted “gender distinct” rates for new coverage. Translation: If you’re a woman, you’ll now pay more than a man for the same coverage.

Rates for single women rose 20 to 40% last year, while rates for single men fell 15%, says Jesse Slome, executive director of the American Association for Long-Term Care Insurance (AALTCI) in Westlake Village, Calif. For couples, who pay blended rates, premiums rose 3%.

Here’s an example: If you’re a 55-year-old woman in good health, you’ll pay an average of $1,225 a year for a new policy providing $164,000 in benefits, without any built-in inflation protection. A man of the same age and health with the same coverage would pay $300-a-year less, according to the AALTCI 2014 Long-Term Care Insurance Price Index.

The difference in premiums is even greater if you buy a policy whose benefits grow with inflation, which many experts recommend. A 55-year-old healthy man would pay $1,765 a year for that same policy with 3% inflation protection, but a woman might pay over $2,300 annually.

Why are women now paying more than men for long-term care policies? Longevity.

Women typically live five to seven years longer than men, which means they’d need benefits for more years. “So, it makes sense that they would pay more than a man,” says Slome. “Prices for insurance are based on risk, which is why men pay more than women for life insurance and bad drivers pay more than good drivers for car insurance,” he says.

A Fight to Overturn New Pricing

But women are pushing back.

Last month, The National Women’s Law Center (NWLC) filed complaints with the U.S. Health and Human Services Department’s Office for Civil Rights against leading long-term care insurer Genworth Financial and three others — John Hancock, Transamerica and Mutual of Omaha. The group maintains that gender-based premiums violate a provision of the Affordable Care Act that bans sex discrimination in health care.

“Women already have a hard enough time making ends meet, earning only 77 cents for every dollar earned by men,” says NWLC Vice-President and General Counsel Emily Martin. “With lower wages to begin with, women simply can’t afford to pay 20 to 40% more than men for the same long-term care insurance.”

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Posted 10:16 AM  View Comments


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