Only a few years ago, the landscape of long-term care insurance was markedly different than it is today. As recently as three years ago, major companies such as Met Life and Prudential sold long-term care policies in large quantities due to their strong ratings and household brands. Purchasers could buy long-term care policies from every company that provided benefit payments that continued for as long as the policyholder was alive and required care. Fast forward to today and neither Met nor Prudential are in the long-term care business; yes, they continue to service the needs of their existing policyholders, but no new policies are available for sale. Moreover, no major company that I am aware of now offers a lifetime benefit period.
Let’s review the bidding on long-term care insurance. It was developed specifically to cover the costs of long-term care services, most of which are not covered by traditional health insurance or Medicare. These include services in your home, such as assistance with Activities of Daily Living, as well as care in a variety of facility and community settings. These services are described typically as chronic in nature, rather than requiring skilled nursing care.
You have choices with long-term care insurance policies. You can select a range of care options and benefits that allow you to obtain the services you need in the settings that suit you best. The cost of your long-term care insurance policy is based on the type and amount of services you choose to have covered, your age when you buy the policy and any benefits you choose to include, such as inflation protection. If you are in poor health or already are receiving long-term care services, you will not qualify for long-term care insurance or you will have to pay more than a healthy person will pay.
Long-term care insurance policies have both a benefit period and a dollar benefit maximum. Benefit periods may extend for up to six or eight years. Policies generally also limit the number of days for which they will pay for care. So either the dollar maximum or period maximum ends your benefits, whichever occurs first.
The reasons that the industry has constricted are not that difficult to grasp. First, the prevailing low-interest rate environment has meant that insurance companies simply cannot find suitable, conservative investments into which they can invest premium dollars and, subsequently, earn a profit. Then, too, as one might expect, when times are bad, more individuals can develop health problems ,which can ultimately produce medical conditions requiring care.
Another important consideration for insurers is that that not an insignificant percentage of term care insurance that were sold in the past were projected to lapse, either because policyholders could no long afford the premiums or because household priorities change. Insurers have discovered, however, that long-term care policies have not lapsed as had been originally projected, and this phenomenon makes it problematic that profits could ever be earned, even in the best of economic conditions.
So, what does all this mean for the future? I have only been able to find a handful of insurers that continue to offer products: MassMutual, Northwestern Mutual, Mutual of Omaha, New York Life, John Hancock, Transamerica and Genworth. Genworth has 40 percent of all of the policies currently in force in the industry, but they have raised my premiums twice in the past 15 years. Premium increases will be more prevalent going forward, and policies will cost more. My policy originally cost $2,200 for the two of us; now that same policy without a lifetime benefit period would cost $4,100 from one company.
The need for long-term care has not gone away, so if you are thinking about whether you should purchase a policy, check out the website of the National Clearinghouse for Long Term Care Information (www.longtermcare.gov). Then it will pay you to shop around.
Greg Roberts is a certified financial planner with 35 years of financial and estate planning experience.
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