Research
November 8, 2011
Long-Term Care: To Buy or Not to Buy
Let’s face it: thinking about long-term care insurance, nursing homes and home health aides is depressing.
It’s no wonder that just 10 percent to 12 percent of America’s elderly population has purchased a long-term care policy.
More are thinking about it though: New research shows that 40 percent of people 50 years or older who were surveyed had “thought a lot about needing long-term care” if they were to become ill in old age.
This research delved into the factors driving individual decisions about whether to buy long-term care coverage – or not buy. The decision “depend(s) on a complex amalgam of many different factors,” concluded a conference paper based on research conducted by the NBER Retirement Research Center.
Here are some of the findings in the paper, by Jeffrey Brown at the University of Illinois, Gopi Shah Goda at Stanford University, and Kathleen McGarry at the University of California at Los Angeles:
- Even though people across-the-board – 87 percent – said they did not want to “create a financial burden for my family if I need long-term care,” this had no major influence on whether individuals purchased coverage.
- The rate of people covered by long-term care insurance was higher among those motivated to leave money to their heirs.
- People who felt that health reasons would make it unlikely that they could live independently in old age also were far more likely to purchase the coverage.
- People who believe family members will care for them when they’re old are less likely to purchase insurance. The prospect of informal family care “does appear to limit demand for long-term care insurance,” the researchers concluded.
There are some real problems with long-term care policies that were not even mentioned.
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.
Moreover, many policies are very difficult to access because of the thresholds imposed, so people cannot get the funds they are in desperate need of. Many families feel lied to and betrayed when that happens, so they are spread the word about those problems.
So why would anyone want to buy LTC insurance?
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. Are these policies expensive? YES! But the cost of care is exponentially higher. As to these lower quality carriers; DONT SELL THEM! It’s that simple. And if people feel betrayed, it’s probably because the idiot who sold them the policy didnt explain it very well. Or, quite possibly, they forgot. It happens all the time.
In addition to the significant negatives set forth by Ms. Price, long-term care insurance has a terrible reputation for price instability. Even the major/solid insurers have imposed 40 percent+ 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.
I agree. You are handing a very large sum of money over to a company in the hope of getting that money back, if needed, far in the future. Even if you trust the current management, that management can change. Mutual insurance companies can de-mutualize to jack up the earnings of those at the top. We saw it with Blue Cross Blue Shield in New York.
And, as this is a very new and evolving idea, it is entirely possible for insurance companies to make incorrectly optimistic assumptions about future claims to use more of the premiums for executive pay.
Then where are you? You are 85, you’ve been paying for 35 years, and suddenly the company is denying claims, jacking up rates, and basically pulling any stunt it can to try to stay solvent.
Fourteen years working in long-term care insurance with 960 clients and 38 active claims, I find that companies keep their promises and deliver the services and the money to help families dealing only with the emotional aspect. Rate increases are on all types of insurance policies like auto, home, and health, so what is with the surprise? You do not see people lapsing those policies even though their risks are less to collect. Further, the low interest rate premiums have to be raised. It is expensive on the onset, but really it’s pennies on the dollars insurance. Put it plainly, with a correctly designed plan for long-term care protection, get it as early as possible while you are healthy. AND get the preferred rates, as if you need care only for 90 days, so you would receive all your premiums you ever put into a policy and have years of security. This is a priority as the number two policy you need to buy after you buy an individual disability income policy.
I bought a long-term care policy at age 58. Now, I am 64. The policy was originally from GE and now Genworth. I am worried about the issues of insolvency of the company and raising policy costs. This policy has a guaranteed “inflation” protection of 5 percent/year. I bought coverage at my estimate of 50 percent of what I would need. Currently my policy has a 90 day elimination and pays approximately $3,500/month, at a cost of $900/year. The policy has a payout limit of four years. At age 80, the policy will be paying about $5000/month or about $250,000 total. I am wondering, is there a point in which it makes sense to drop the policy? It seems that this type of “new” insurance sounds good, but needs time to prove itself. I have had no increase in premiums over the last six years.
At 22, my husband and I have talked about this many times. We’d like to have a plan in motion, but we live in fear of the changes which are impossible to foresee. How do we even know that the funds will be available by the time we’re old enough to need it?