Kiplinger’s Personal Finance: The long-term-care insurance dilemma

One of the most effective ways to protect your retirement savings from the high price of assisted living, in-home care or a stay in a nursing home is long-term-care insurance.

But recent premium hikes have many baby boomers worried that coverage is no longer affordable.

The median cost of one year in a private room in a nursing home was $97,500 in 2017, according to Henrico County-based Genworth Financial’s Cost of Care study (www.

A year of assisted living was $45,000, and 44 hours per week of home care — which most people prefer — came to $49,000.

Care costs have been going up by 3 to 4 percent per year over the past five years.

Those rising costs have put pressure on long-term-care insurers. Almost every long-term-care insurer has raised rates at least once, and more rate increases are on the horizon, depending on the insurer and the state.

Policies with lifetime benefits and 5 percent inflation protection have been hit the hardest.

For example, Mike Ashley of Prairie Village, Kan., purchased a Genworth policy 19 years ago, when he was 52 years old. He paid $879 per year for a policy with a $70 daily benefit, 5 percent inflation protection and lifetime benefits. After two rounds of rate increases, his premiums had climbed to $1,547 per year.

Insurers admit they made major mistakes when pricing these policies. They expected more people to drop coverage, overestimated the interest rates they’d earn on their investments, and underestimated the size and length of claims.

Fortunately, there are ways to make long-term-care insurance more affordable.

Don’t drop your policy if you’re faced with an increase; new coverage will cost a lot more.

Although Ashley’s annual premiums increased by more than 75 percent, he’s 19 years older and his daily benefit has grown by 5 percent a year. A new policy for a 71-year-old with similar features and coverage would cost at least $9,000 a year.

If you can’t afford the higher premiums, your insurer will generally give you several options.

For example, you may be able to minimize the rate increase if you cut future inflation protection from 5 percent to 2.5 or 3 percent, said Claude Thau, an insurance consultant in Overland Park, Kan.

If you haven’t bought a policy yet, you can still find coverage that protects a big portion of your retirement savings while keeping the premiums affordable.

One option is to figure out how much long-term care your retirement savings and income will cover and use insurance to fill the gap.

You can trim the premiums not only by buying a policy with less inflation protection but also by selecting a shorter benefit period.

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