Wednesday, July 3, 2013

Long Term Care Insurance

One of the most common topics in my financial planning discussions with clients involves long-term care insurance.

So is long-term care insurance the answer?

The downside of living longer, to an age that prior generations would have mostly though unimaginable, is the fear of either running out of money in your old age, or being a burden to your family.

In theory, yes, but in reality often times no.
Here's an excerpt from a Wall Street Journal piece written earlier this week, posted on Yahoo Finance. After discussing the soaring premiums on existing long-term care policies, the article goes on to say:

Currently, Medicare pays for only short stays in nursing homes or in-home care under limited conditions. For the most part, seniors who need care have to burn through their savings to pay for it. Only after they are impoverished will Medicaid—the government health program for poor people—pay for a basic level of care.

Insurers have been aware of this gap for decades, and many began selling long-term-care policies in the 1980s and 1990s. They vowed to provide policyholders with better access to high-quality nursing homes and home-based health care than Medicaid.

But insurers underestimated how fast medical costs would rise, and how many seniors would actually use the benefits. And they underpriced the insurance premiums. Making matters worse, some insurers that were "hungry for market share" charged too little at first and planned to increase premiums later, says Joseph M. Belth, editor of the Insurance Forum newsletter and professor emeritus of insurance at Indiana University. 

Many once-prominent sellers of long-term-care insurance are in full retreat. Five of the 10 largest sellers, including MetLife Inc., Prudential Financial Inc. and Unum, have sharply reduced or discontinued sales since 2010, according to Moody's Investors Service.

Only a dozen or so companies still sell meaningful numbers of policies, down from about 100 a decade ago, according to LifePlans Inc., a consultant. In the past decade, sales to individuals have fallen by two-thirds to 233,000 policies a year, and the number of insured people is stuck at about seven million.

There are other considerations that my clients have found:
  • Annual premiums have soared as insurance companies desperately try to keep up with the high costs of aging;
  • There often is a lag between the time coverage is needed and policies begin to pay;
  • Policies often have time limits, even if the insured still needs assistance;
  • Insurers often have only a small group of agencies that are permitted to offer in-home care to policy holders.  Problem is, often the staff from these agencies is not either reliable or competent.