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.