Behavior

Readers: Long-Term Care Policies Costly

One intention in introducing Squared Away this year was that it would become a forum for readers to share views about financial behavior, psychology, decision-making, products, education, and culture.

Some articles have been more successful than others in generating readers’ comments in the space provided at the end of each post. A post last week, “Long-Term Care: To Buy or Not to Buy,” was notable for the heat it generated.

It provided reasons the vast majority of the elderly do not purchase long-term care coverage from an insurance company. While the article, based on academic research, was about personal decision-making, readers focused on problems with the policies themselves:

Samantha Price noted:

Firstly, they are very expensive, so no one should be surprised why so many people are not buying. Secondly, many of the more affordable policies are issued by below-quality insurers, who have already shown their unreliability by being unable to pay their policyholders.

VG replied:

Expensive? Compared to what? Every insured I am aware of who has received benefits got all their lifetime premiums back within a year of going into a care environment.

Richard Kaplan provided his article assessing private and government coverage and pointed out some other “negatives”:

Long-term care insurance has a terrible reputation for price instability. Even the major/solid insurers have imposed 40 percent-plus hikes on existing insureds, knowing that those people are essentially captive customers. In short, purchasing such insurance provides very little peace of mind or any assurance of future affordability.

Lawrence Littlefield agreed there’s uncertainty:

Even if you trust the current management, that management can change. Mutual insurance companies can demutualize to jack up the earnings of those at the top. We saw it with Blue Cross Blue Shield in New York.

Rene Apack, a long-term care insurance broker for 14 years, said she has found that insurers “keep their promises” to her clients:

Rate increases are on all types of insurance policies like auto, home, health, so what is the surprise. … Further, with the low interest rates, premiums have to be raised. It is expensive on the onset but really it’s pennies-on-the-dollars insurance.

Readers, let’s keep the conversation going! Are those who purchased coverage been glad they did, or do you regret it? Please comment below.

16 Responses to Readers: Long-Term Care Policies Costly

  1. John Cutler says:

    Value is in the eyes of the beholder. I’ve had coverage for years but never needed it. So, in theory, I’ve had piece of mind. Yet if I never bought, I’m sure I could have put the problem out of mind and gone along without worrying about it. The other matters like design changes and pricing uncertainty is more the problem of a new market. How long did it take the auto industry to come up with a product that didn’t cause equal concern to the owner? Half a century?

  2. Richard Kaplan says:

    Broker Apack correctly claims that “all types of insurance” increase rates, but life insurance usually has fixed rates. More importantly, the “low interest rates” argument seems to be a one-way street: when insurers reap big investment returns from stocks and bonds, they never reduce premiums for their insureds.

  3. Michael Waggoner says:

    Most insurance policies — such as auto, home, and health — only provide current coverage. They do not have an investment element. If prices go up, there is thus no loss of investment, if one discontinues the policy.
    Life insurance, annuities, and long-term care insurance do have an investment element. Although the rates may be scheduled to increase, only long-term care may have rate increases that are not scheduled. These increases, while perhaps necessary to the solvency of the plan, are an unwelcome shock to the insured. The insured must either pay the increased and perhaps ill-affordable rates, or else forfeit their often-substantial investment.
    This unique and serious risk discourages buying long-term care insurance.

  4. One mutual company, Guardian, is leaving LTCI business this year since it has not proven profitable. Compared to life insurance or disability insurance, LTC is a relatively new risk to insure and companies have no resource like mortality or morbidity tables for pricing.
    Companies went out of business or raised premiums because the product was mispriced or underwritten poorly, leaving claims larger than predicted. I wouldn’t be surprised if someday there is a claims scandal as there was several years ago in the disability insurance market.
    I’m 67, retired and have a LTCI policy that covers my wife and me. It has been in force without claims and without premium increases for about seven years.
    We don’t expect our son or grandchildren to care for us when we become frail. That’s why I have LTCI.

  5. Jeff Sonshine says:

    My long-term care premium is over $4,000 per year. I’ve spoken to gerontologists who say that only 10 percent of seniors spend much time in nursing homes. Then, factor in the risk of the the insurance company’s financial ability to pay along and their desire to avoid paying if possible, and I question whether it’s worth it.

  6. I am a fee-only planner and do recommend these policies to many of my clients (I refer them out to an agent). The question is not are they costly, but do you NEED to protect against the risk? For some, if your assets are low enough, then it probably does not make sense to purchase a policy since there simply is not enough to protect. For those who are fortunate enough to have a multi-million dollar nest egg, you could probably self-insure. It is those in the middle, who have saved and have a decent nest egg, who should be considering this type of policy. I am fairly young (44-years-old). ]My wife and I have had policies for eight years now. We have yet to have a premium increase, though I’ve been warned that one is coming next year. One of our clients has just been informed of a 23 percent increase, after having the policy for six years. That works out to annualized increases of 3 percent – not really all that bad. If you have enough to protect, then a policy from a strong insurer who has been in the business for a while, is a good idea.

  7. Leslie Braun says:

    I am interested in hearing about the new hybrid policies that do away with the “use it or lose it” feature of traditional long-term care policies. Does anyone have experience with these recent products?

  8. Everyone in America over the age of 35 should have a long-term care policy.

  9. Dennis Grue says:

    Women, who typically are care providers for ill parents or spouses, should consider LTCI against this possibility. The added benefits of care coordinators, home modification benefits, and home care help greatly in dealing with these illnesses, and the decision to leave or continue employment is less stressful.

  10. Smith Kim says:

    I found this article very up-to-date and informative, as it provides excellent tips to obtain the best possible long-term care insurance rates and quotes. With this handy information, you are able to make your decisions more wisely and obtain the best long-term care insurance plan for yourself. It highlights the importance of having long-term care insurance, especially for the people above age 65 plan for their long-term care needs.

  11. Ted Anagnoson says:

    A major problem with long-term care insurance is that purchasers need to feel like they are getting the money back in order to have it be a legitimate purchase. They feel that it is money wasted if they don’t go into a nursing facility or otherwise use it. We have the CalPERS policy in California, and the same kinds of price instability that have affected the private insurers have affected CalPERS as well. The biggest problem here is that people’s attitudes towards using long-term care insurance have changed substantially in the last 20 years; what was then almost unthinkable has now become more commonplace…..

    All in all, there is a place here for a government-run policy that everyone is required to contribute to. Something like the CLASS Act, but not voluntary, unfortunately, will never happen with our current political parties in Washington. There is a virtual deadlock between the Republicans and the Democrats.

    Just thoughts…

  12. There always seems to be a new kind of insurance out there. I just barely got a hang of the 831(b). But really, I think that long-term care insurance can be a good thing. Like Ted said, people want to feel like it’s a “legitimate purchase.”

  13. Swami Ramdev says:

    It is possible for one to find affordable insurance. But, the uninsured have to be willing to get quotes from various insurers, in order to ensure that they are getting the best rates on the policy coverage. In many cases, one will find a great price disparity from one company to the next, for the slightest change in the policy.

  14. Kim Blanton says:

    There is a lot of reader interest in long-term health care. The Society of Actuaries in January released a series of reports on retirement issues — one of them about long-term care.

    To read the report, follow the link on this recent blog post:
    http://fsp.bc.edu/reports-explain-key-retirement-issue/

    Thanks for reading!
    Sincerely, Kim Blanton

  15. James Black says:

    It’s hard to find affordable insurance. But the good thing is that we have so many options for so many different kinds of insurance. Thanks for this article and for your insights.

  16. Stefan says:

    I am very confused to find out what is the best insurance plan. After reading your blog, I found that long-term care insurance is the best insurance for me and my family.