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New product makes long-term care easier

Updated: May 3, 2013 12:14PM

Originally published: October 2, 2006

We all insure our most valued assets: our homes, our cars, our lives. Then why not insure your retirement plans against the devastating costs of long-term custodial care? Long-term-care insurance is about to get dramatically easier to understand and much less expensive with a new product being introduced this week by John Hancock.

The latest MetLife survey shows that the average cost of care in a private room in a nursing home is now more than $75,000 a year. This is particularly a women’s issue, as 72 percent of all nursing home residents are women, many of whom spent their energy and money taking care of a spouse, and now find themselves alone and impoverished.

Not covered by Medicare This kind of custodial care is not covered by Medicare or supplement policies. These costs are only covered by long-term-care insurance policies that will pay for care in your home, in an assisted living facility or in a nursing home.

If you rely on spending down or giving away your assets to get the state Medicaid program to pay for your care, think again. States are carefully scrutinizing your finances as the costs soar. Even worse, most Medicaid care is covered only in nursing homes -- leaving you without the choice of home health care, assisted living or the better nursing homes that do not accept Medicaid patients.

Do you want to spend your final years in a state-funded nursing home, just as other baby boomers are crowding in? I thought not, so you must start thinking about long-term-care insurance now.

More than a dozen companies offer these policies, including John Hancock, MetLife and Genworth (the former GE), each with its own coverages and choices. (In my recent book -- The Savage Number: How Much Money Do You Need to Retire? -- I devote an entire section to understanding and buying long-term-care insurance -- something you should do in your 50s, when your health and the premiums are lower.

This week, John Hancock will announce its new “Leading Edge” long-term-care insurance policy designed to simplify the choices, lower the costs, and make buying a long-term-care policy much easier.

The new policy features built-in, compound inflation protection linked to the Consumer Price Index. When the CPI increases, so do the benefits -- on a compound basis. If the CPI decreases (which happened most recently in 1955) the benefit remains level, until the CPI rises again.

It’s possible that nursing care costs could outstrip the CPI, so they’ve added another feature, “5 Years Plus $1 Million.” This is a truly revolutionary concept. Many people (including me) have purchased lifetime coverage, fearing a long-term period of care. (Statistics show that it’s a relatively rare phenomenon, but the possibility preys on your mind when you’re considering coverage.)

This new John Hancock policy mitigates that worry by offering a five-year benefit period, plus an additional $1 million. That is, if the pool of money from your five-year benefit period runs out, you automatically get an extra $1 million in benefits!

The result is a policy that is significantly less expensive compared with buying coverage for your entire lifetime.

For example: If you’re 55, married and seeking $150/day coverage, this new policy would cost about $1,974 a year, about 25 percent more for lifetime coverage from other companies. If you wait to buy until you’re age 62, the cost is $2,800 a year -- less than two weeks in a nursing home! It’s even affordable at age 68, costing $4,200 a year, more than $1,000 less than lifetime coverage.

Household duties coveredIt offers other important features, including personalized assistance in finding care, discounts on provider services and expanded benefits to cover costs of household duties, allowing policyholders to stay home longer and avoid the dreaded nursing home.

With this new policy, John Hancock has moved ahead of the pack. It’s not that some of these benefits aren’t available in other companies’ policies. But now the insurance industry will be challenged to make all long-term-care policies more understandable, affordable and accessible.

That’s a good thing because baby boomers are going to need them. And that’s The Savage Truth.

Terry Savage is a registered investment adviser. Distributed by Creators Syndicate.

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