Make short work of getting long-term care insurance

January 23, 2003
BY TERRY SAVAGE SUN-TIMES COLUMNIST

Hurry. Wake up. If you're over 50--or your parents are--please take this advice. For years, I've been urging you to buy long- term care insurance. These new policies pay benefits for home health care, as well as care in a nursing home. They've become so popular that now some of the best deals are disappearing fast.

The good news is that the concept of buying long-term care insurance is catching on. Last year the industry paid out more than $1 billion in benefits to policyholders. But the bad news is that the insurance companies are just waking up to the fact that people are living longer, requiring care for more years, and that the cost of care is rising far more quickly than anticipated.

Plus, the recent declines in interest rates and stock prices means the insurance companies are not earning as much money on the premiums they collect and hold in reserve against future claims.

Demand up, benefits down

The insurers are facing a crunch. So just as the demand is rising for long-term care policies, insurance companies decide they'll either charge higher premiums for new policies or cut back on the benefits they offer.

Premiums for long-term care insurance are fixed as of the date you purchase the policy. The annual premium amount is based on your age at the time of purchase, your health and where you live (nursing costs are higher in some areas). The premium can be increased only if the state in which it was sold approves, not if your health deteriorates. And any increases must apply to everyone of that age who purchased the policy. The best policies carry at least a 10-year guarantee against price increases.

Anticipating a squeeze, insurers have stopped selling many generous, older policies, and are creating new ones. CNA Insurance, one of the most popular carriers, said that after Feb. 7, it will no longer offer unlimited lifetime coverage. Instead the total payout on future policies will be capped at $1 million.

That may sound like a lot, but in 20 years at current inflation rates, that amount might cover only four to five years of nursing care. In cases involving Alzheimer's or stroke, care might be required for many more years.

CNA said, "There are many unknowns when we look out over the next 20 years ... As a responsible carrier it is our obligation to design and price for the future."

That means higher prices and less coverage for the new policies.

Here's an example:

If a 54-year-old buys the current "Preferred Solution" CNA plan before Feb. 7, a $200 daily benefit, plus a 5 percent simple inflation factor, and unlimited lifetime benefits , would cost an annual premium of $1,890.66. That premium could not be increased for 10 years.

But the CNA "Independence" plan that will replace it (and still must be approved in Illinois) would have a lifetime cap of $1 million and would cost more than double the old policy--$4,013.57 per year. It would carry a 20-year guarantee against rate increases.

If you're considering buying long-term care insurance, you'll want to make sure you're dealing with a top-tier company like CNA Insurance, GE, Unum, John Hancock, MetLife or Prudential, among others.

What do you look for? Lifetime benefits, inflation protection, generous benefits for home health care, guarantees against rate increases and plans that are called "tax-qualified," meaning that if you ever access the benefits, the money comes out tax-free.

Don't delay another day

Comparisons can be complicated. So you'll want to deal with an independent agency that can sell policies from any company. Here's a list of companies that I know will deal fairly with you. And you should definitely ask your own agent for a price.

But don't delay. You're getting older, and the policies are getting more limited every day.

* MAGA Ltd. (847) 940-8866 Murray Gordon.

* Long Term Care Quote (800) 587-3279, Rob Davis.

* Near North Insurance (312) 799-4869 Gail Steingold.

Don't procrastinate.

After age 65, the odds are 10 times greater that you will need some type of long-term custodial care in your lifetime than that your house will burn down. But you pay your homeowners insurance premium every year.

I sincerely hope that these long-term care premiums turn out to be a huge waste of money. But I wouldn't bet against it.

And that's The Savage Truth.

Terry Savage is a registered investment adviser and is on the board of directors of McDonald's Corp. She appears weekly on WMAQ-Channel 5's 4:30 p.m. newscast.

Copyright © Terry Savage Productions

Terry Savage is the Chicago Sun-Times personal finance columnist, and a regular commentator on PBS' Nightly Business Report. Her latest book, The Savage Truth on Money, was named one of the ten best money books of 1999 by Amazon.com. It joins her two previous books, Terry Savage Talks Money and Terry Savage's New Money Strategies for the 90s, on many bestseller lists. In 1997 the Medill School of Journalism selected her as its "Best Financial Columnist." Terry Savage was a founding member and the first woman trader on the Chicago Board Options Exchange. She also was a member of the Chicago Mercantile Exchange's International Monetary Market. For twelve years she appeared daily on CBS television in Chicago, and now is a frequent guest on programs ranging from CNN and CNBC to Oprah! She serves on the Board of Directors of McDonald's Corporation and Pennzoil-Quaker State Company.