Guest Column
There have been tremendous changes and fluctuations in the long term care insurance industry in the last 15 years. The cost of care has more than double while the cost for long term care insurance has tripled and in some cases quadrupled. There are also fewer companies offering traditional long term care insurance in the marketplace now than at any other time.
There are a couple of reasons for this. The first reason is the low interest rate environment that we have seen for the last several years. Insurance companies have seen dramatic changes in their investment income due to these lower interest rates. Secondly, and more importantly, are claims. More policy holders have bought and kept their policies than what was anticipated. Also, those policy holders have used those benefits. Long term care insurance claims are expensive and can be worse than medical claims in a lot of situations. They can continue for years. Imagine writing a check for $ 6,000 every month for the next four years.
According to the Department of Health and Human Services, on average, someone who is 65 today will need some type of long-term care services and supports for three years. Women need care longer (on average 3.7 years) than men (on average 2.2 years), mostly because women usually live longer. While about one-third of today’s 65-year-olds may never need long-term care services and supports, 20 percent will need care for longer than 5 years. Bottom line: Insurance companies are losing money on long term care insurance because their clients are using it.
What are your options then? You can do nothing. (bad idea) You can self-insure. (Just make sure you have the financial means to do so) Or, you can get a plan.
I’ll touch on three different concepts. Because of the Pension Protection Act of 2006, there has been an influx of hybrid products over the last five years. Hybrid products combine other traditional long term care insurance with some other type of insurance. One popular combination is pairing life insurance with long term care insurance. These products allow you to access the life insurance policy’s death benefit to pay for long term care services. It also provides a death benefit to beneficiaries if you use little or no long term care services.
Another popular combination is putting together annuities with long term care insurance. This is for someone who may have put aside a certain amount of money into a CD for a “rainy day” fund. They may not say it, but in reality, this is their nursing home fund. Hypothetically, you could put $50,000 into a specially designed annuity. If the need for long term care services arises, then they have $ 150,000 worth of benefits available to them to pay for those services. The benefits come out tax free and if they don‘t use it, the beneficiary would receive the $50,000 with interest at death.
Finally, for younger individuals (under age 70), I would certainly encourage you to still look at traditional long term care insurance. It might still be the best for you. Younger ages haven’t been hit as hard on those price increases. Explore long term care insurance, see what’s out there, and above all, develop a plan for you and your family.
Chris Ward is an insurance broker located at Advisors Financial Center in Asheboro, NC. He has been specializing in life life, long term care, and medicare insurance products for over 20 years.
Regarding LTC insurance, you failed to mention that many policies do not have a guaranteed no-change premium. My policy increased to the point that I could no longer afford it, especially knowing that they could increase the rates again as they see fit. I kept the policy on my wife, but it has gone up as well. Hopefully, interest rates will soon go back up, deferring any future premium increases.
Dave, you’re absolutely right. Some companies have seen tremendous rate increases while others have had more modest rate increases, but all companies have gone up. There used to be a couple of companies that would guarantee their rates, but they no longer offer long term care insurance for new purchases. For a guarantee, look at the blended products. Several of them will guarantee their products with no rate increases. Thanks for you comment.
Now that 40 states have “LTC Partnership programs” you do not have to buy an expensive “unlimited” long-term care insurance policy. You only need to buy an amount of long-term care insurance equal to the amount of assets you want to protect for yourself, your spouse or partner, and/or your heirs.
These government-approved policies are like a traditional long-term care policy with additional consumer protection features.
Here’s an explanation of how these policies work:
http://bit.ly/How-Partnership-Policies-Protect-Assets
Joyce,
The LTC partnership plans have definitely helped in the long term care planning arena. It’s, in essence, the government encouraging its citizens to purchase long term care insurance. Why? Because the states are paying a large portion of the costs associated with long term care expenses through the Medicaid system. It’s a great way to purchase a smaller policy (say $ 180,000 of benefits) and potentially protect the same amount of assets for their beneficiaries. Great point.
I purchased a LTC policy at the age of 55, thinking I would get great rates while I was healthy, compared to purchasing a policy in my 60’s. My husband was not eligible. Like Dave, I am now concerned about the future of this policy since I had a very large rate increase this year. When I received my rate increase, I price shopped other company policies, and found my current policy was still lower than purchasing a policy from another company.
Although I can afford the rate increase now, while I am younger and working, I am afraid if rates continue to rise in future years I may not be able to afford the policy at an age when I may need it most. I also have to wonder if I really was better off purchasing in my 50’s instead of waiting until my 60’s and paying premiums for a shorter period of time, even though at a higher rate..
Are the blended products really any more cost effective than LTC and will they offer comparable benefits?
Janet,
Cost effective??? I know you probably don’t want to hear this answer, but “it depends”. If you were to go on claim for any amount of time, traditional long term care is the most cost effective. The blended products are for consumers who say, “Well, what if I never use it? Look at all that money I threw away.” The blended products offer protection above what you would normally have in other safe investments like annuities, cd’s, or life insurance. While at the same time, if you never need ltc services, you haven’t lost anything like you would in a traditional ltc policy. Hypothetically, you put $ 50,000 in an “pension protection act” annuity. It looks just like any other fixed annuity. It pays a fixed rate of interest and if you never use it for long term care expenses, your beneficiary get the full $ 50,000 plus interest. However, what makes it attractive is that the insurance company will set aside an additional $ 100,000 for you that is eligible for long term care expenses. So, if you need ltc, you just turned your $ 50,000 annuity/cd into a $ 150,000 ltc fund. By the way, all money pulled out for LTC are tax free, even the gain. And yes, the benefits are comparable. So, cost effectiveness is a tough question. It’s one of those things that we only know in hindsight. I hope that helps.