If you’re old enough to remember rotary-dial telephones and black-and-white television, then you’ve probably heard of long-term care insurance.
It pays for help with routine activities, such as eating, bathing or dressing at home, or in assisted living or nursing facilities when you can’t take care of yourself during an illness or disability. Medicare and other health insurance policies cover medical expenses but not custodial care. People on average buy long-term care coverage in their 50s and 60s, according to the U.S. Department of Health and Human Services.
But you may not have heard about short-term care insurance, which pays for the same types of services for a period of less than a year.
“It’s an overlooked and growing segment,” says Jesse Slome, director of the National Advisory Center for Short-Term Care Information, a trade group.
The number of short-term policies sold in 2015 increased by almost 20% compared with the previous year, according to the advisory group. Meanwhile, sales of long-term care insurance saw a 20% year-over-year decline in 2015, says Slome, who also is the director of the American Association of Long-Term Care Insurance trade group.
The trouble with long-term care insurance
It’s been a bumpy ride for long-term care insurers in the past 15 years. Claims rose more than they projected and their payouts were costlier. The companies also make money by investing the premiums customers pay, but low interest rates after the 2008 recession hurt their bottom lines.
More than 100 companies sold long-term care insurance in the late 1990s, compared to roughly a dozen today. These remaining companies offer less generous benefits for prices that are higher than a decade ago, and they are pickier about who can qualify for new coverage.
Short-term vs. long-term care coverage
Insurance for short-term care is cheaper than for long-term care because it provides coverage for less time, from three months to 360 days versus more than one year for long-term care insurance. You choose the coverage amount when you buy a policy. The average cost of a short-term care policy sold in 2015 was $1,043 annually, according to the short-term care trade group.
It’s also easier to qualify for such policies. The application doesn’t require a medical exam, and some companies only ask a handful of yes-or-no health questions, Slome says. And you can apply at older ages, he adds. The cut-off age to buy short-term care coverage typically is 89, while for most long-term care policies, it’s 75.
Long-term policies feature an “elimination period,” the number of days you pay for care on your own until the policy starts paying. A typical elimination period is 90 days.
Short-term care insurance generally pays out benefits immediately.
“These are geared toward people who want some coverage, but are inhibited from buying long-term care insurance because of the price, their health or their age,” Slome says.
Short-term care insurers include Aetna Inc., Assurity Life Insurance Co., Bankers Fidelity Life Insurance Co., Bankers Life, Guarantee Trust Life Insurance Co., Kemper Senior Solutions, Medico Insurance Co., Standard Life and Accident Insurance Co. and United Security Assurance.
Consumer advocates are raising concerns about short-term care insurance because state regulators don’t hold the product to the same standards as long-term care insurance. Less regulation means fewer guaranteed consumer protections.
“In most states they’re flying under the radar,” says Bonnie Burns, training and policy specialist for California Health Advocates, a nonprofit for Medicare advocacy for Californians. “Some state [regulators] I talked to didn’t even know the policies were being sold in their states.”
Burns says consumers should plan for more than the three to six months that many short-term care policies cover. The median stay in assisted living is 22 months, according to the Centers for Disease Control and Prevention.
Slome doesn’t agree. “No product is ever perfect for everybody, but some coverage is going to be better than no coverage,” he says.
Follow these tips to shop:
- Get quotes from different insurers.
- Read the fine print in the policies to learn exactly what’s covered.
- Decide what you can pay in out-of-pocket expenses and the amount of insurance coverage you will need.
You may pay premiums on the policy for many years before making a claim, so take the time to make sure you understand what you’re buying.