Q. My wife and I are looking into purchasing long-term care insurance policies for the future, but we are concerned about the premium cost. Are there any ways to reduce the cost?
A. Yes. While long-term care insurance is a good way to plan for the future, the premiums are not inexpensive as you have discovered. However, there are some ways that you can tinker with the policy terms in order to reduce that cost:
1) Shorter Benefit Period: probably the most significant cost saving step is to purchase a policy which covers a limited term of years, rather than for the balance of your lifetimes. Unless you have a family history of a chronic illness, it is not likely that you will need coverage for more than 5 years. According to a study from the American Association of Long-Term Insurance, only 8% of people who needed coverage needed it for more than 5 years. By purchasing coverage for 3, 4 or 5 years, rather than for your lifetimes, you can save thousands of dollars in annual premiums. Alternatively, if you do have chronic illness in your family, perhaps you may wish to consider a policy with a longer fixed duration, e.g. 10 years.
2) Longer Waiting Period: most policies have a waiting period before coverage begins, which is typically between 30 and 90 days. The longer you make this waiting period, the cheaper your premiums. Remember, though, that you will have to pay the cost of care out of your own resources during this waiting period.
3) Reduce Daily Benefit: instead of purchasing the maximum daily benefit you might need in a nursing home, you might consider insuring for only a portion. A lower daily benefit will mean a lower premium. But you will then have to pay from your own resources for the uninsured portion.
4) Shared Care Policy: if you buy a policy to cover both you and your spouse, a shared care policy might give you more coverage for less money. With the shared care policy, you buy a pool of benefits which you and your spouse can split. For example, if you buy a five-year policy, you would have a total of 10 years between you and your spouse. If your spouse uses 2 years of coverage under the policy, you will have 8 years remaining. A shared care policy may cost more than separate policies for the same benefit, but it will allow you to buy a shorter term policy at less premium cost.
5) Inflation Protection: inflation protection increases the value of your benefit to keep up with inflation and is generally recommended. But you can save on premiums by choosing the method of inflation protection, e.g. based upon compound interest increases or on simple interest increases. If you are younger than age 62, you should purchase a compound inflation protection. Doing so, however, can more than double your premium. If you are older, some experts believe that simple inflation increases should be enough, and opting for this arrangement will save on premium cost.
Remember, also, that a portion of your premium may be tax-deductible, depending upon whether your total unreimbursed medical expenses are enough to meet certain thresholds for deductibility. Also, before you decide upon an insurance company, check its rating for paying claims and the historical stability of its premium adjustments over time.