Long-term care insurance: 6 ways to buy it right.
- November 18, 2010
- 13 comments
- Posted in Health Insurance, Latest Posts
You have to pay attention, when MetLife — the Metropolitan Life insurance Company — quits selling long-term care insurance. Aetna, Aegon and Equitable Life have exited, too. Insurers are struggling for profits and pushing prices up. Last month, John Hancock asked the states to let it raise premiums on existing policies by an average of 40 percent. Premiums for some older Genworth policies are rising by 18 percent.
Not surprisingly, LTCI sales – while recovering from last year’s dive — still hang well below their 2000 peak. “When people have less discretionary income, they don’t view it as a need,” says insurance analyst Jeffrey Lane of A.M. Best, which studies the industry.
I’m a big believer in LTCI, especially for couples, who – too affluent for Medicaid — want to shield their mates from the potentially huge costs of care. My late husband couldn’t qualify for coverage, due to a pre-existing condition. In the last year of his life, his bills for care at home exceeded $100,000. When I remarried, I barely glanced at my new husband’s bank balance. What mattered was whether he could get LTCI. He could and did, which sealed the deal. Priorities change, as life rolls on.
Currently, the industry finds itself in an investment trap. “Between half and two-thirds of all claims are actually paid from a company’s investment income,” says Jesse Slome, executive director of the American Association for Long-Term Care Insurance. With stocks underperforming and interest rates low, the portfolio isn’t carrying its share of the weight. So premiums have to rise. Slome estimates that for every 1 percentage point that rates decline, an insurer needs a 10 to 15 percent increase in premiums on its older policies.
The industry is also being buffeted by its own miscalculations. People are holding on to their LTCI policies longer than the companies expected (their plan was that more of you would decide that you couldn’t afford the premiums, and quit). Periods of care are lasting longer, too, and insurers have added some bells and whistles that might have been underpriced.
Newly-issed policies carry higher premiums, to cover these costs. It’s the older ones that are dragging the business down. Most of the LTC insurers have already raised their prices at least once. Those that haven’t, such as New York Life and Northwestern Mutual, were expensive to begin with.
Nevertheless, this industry isn’t going away. People with assets should get their heads out of the sand and protect themselves against these old-age costs. Here are six rules for buying LTCI today:
1. Buy group insurance, if your employer offers it. The younger you are, the less it costs. Don’t worry about the fact that the insurance company might not be in business 40 years from now. Someone will be servicing those policies – a new insurance company or your state’s insurance guaranty fund. Your coverage will be good.
2. Be prepared for your policy’s premiums to rise. In theory, the premium you start with should be fixed for life. In practice, that rarely happens. Maybe today’s new policies are properly priced for the next 40 years, but maybe not. When you’re budgeting for retirement, prepare for the possibility that you’ll have to pay more to keep your policy in force.
Most states provide a safety net for LTCI. If you can’t afford a premium increase, the insurance company has to offer you an alternative – say, a policy at the same price you’re paying now, but with lower benefits.
3. For individual coverage, choose a large, well-diversified insurance company, rated no lower than A. Even if it quits selling policies, it will be strong enough to manage its existing business. Small and midsize companies, and companies that specialize in LTCI, are another story. Many of them are finding it hard to maintain the surpluses necessary to back their current book of business, A.M. Best reports. Best has lowered its credit ratings on many of these firms and calls the outlook “negative.”
4. If a big insurer won’t take you, go for the small insurer anyway. As long as you have a policy, consumer protections click in. For example, two companies that specialized in selling policies to poorer health risks – Penn Treaty and American Network — failed last year. The policies were transferred to the various state insurance guaranty funds. Depending on your state, you’re protected for at least $100,000 in LTC payments and usually $300,000 or more. (Check the limits at the National Organization of Life & Health Insurance Guaranty Associations.)
5. Consider hybrid products. You can buy life insurance policies or annuities that let you divert part or all of the benefit to long-term care expenses. If you have an old annuity you won’t use, exchange it tax-free for a hybrid annuity, says Judith Maurer of Low Load Insurance Services. You can double or triple the money available for care.
6. Cut the cost of a policy while still providing yourself with a reasonable safety net. You might cover yourself for only three years (the average nursing-home stay) instead of five years or a lifetime. Buy a lower daily benefit — $100 a day instead of $150. That won’t cover the whole bill but it lessens the burden on your savings. Pay premiums annually instead of monthly. Wait six months instead of three months before benefits begin. State LTC Partnerships give you access to Medicaid, as long as you have some private LTCI coverage, too.
If your doctors accept Medicare’s reimbursement schedule, consider canceling your Medigap coverage and using that money to help fund LCTI. Coverage of small deductibles isn’t nearly as important as coverage of long term care.
It’s not only the insurance companies and investment markets that are messing with the future of long-term care. “Some states are playing games” by not approving needed rate increases on existing policies, says Steve Schoonveld, chief financial officer and actuary of LifePlans, a consultant to the industry. They’re doing it in the name of consumer protection. But that adds to the need for even higher premiums later, Schoonveld says. Some states don’t permit short-term policies or other money-saving designs that could reach a wider market.
For now, LTCI is a luxury product that not even the well-to-do are taking much interest in. That’s too bad. A lot of your future assets are on the line.
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T
Tags: Health Insurance, long-term care insurance, MetLife
Dear Jane,
i’m 54, unemployed, and trying to pay for an individual health care policy that is annually increasing by 10-15%.
The insurance company can at any time cancel my policy or adjust the premium to unaffordable levels. And my state (CA) high risk pool insurance will increase to $1500/month for lousy coverage.
And you want me to pay for LTCI from the same scum that are raping me on a monthly basis?
I will be impoverished or will have to move to Canada. Those are the only options for those without millions in cash to pay for LTC out-of-pocket.
Sorry Jane, insurance companies make child molesters look respectable.
You make a point
Unfortunately, I am one of the affluent poor. I have almost 1.2 million in investable assets. Long term care could wipe out the estate. However, these policies are so confusing and the premiums are rising so fast, I cannot see the advantage of buying a policy. Unless they can come up with something similar to life insurance with say a 20 year level term premium, I am not buying. It is sad that people bought the hype of these policies when they were in their late 50’s only to see the premiums sky rocket to the point that they cancel the policy.
You’ve nailed a serious problem.
Have you spoken to a life insurance agent about combo life/ltc insurance? It takes a significant upfront investment but depending on your age and the age of your spouse, it could be cost effective. if you’re single, there’s no need for coverage. Use the $1.5M to pay your own way.
Dear Jane,
I am 64, a widow, and have 1.5 million in rental properties along with a nearly paid off home. I bought LTC back when I was 54. It wasn’t terribly expensive and I’ve kept it up all these years. In your article, you said, “Aetna, Aegon and Equitable Life have exited, too,” so why is my company (one of those three) still collecting premiums?
I’m confused.
They aren’t selling new LTC policies but they are still servicing old ones. The law requires them to do it. They might sell the business to another carrier at some point in the future, but they can’t just shut the policies down. You’re wise to have LTC. I have it, too.
I just filled out the paperwork on a LTC policy with Genworth. It’s one that you pay $4k/year for ten years. Then nothing afterwards. I wait 3 months before benefits kick in. Isn’t this a longtime to wait? Should I pay a higher premium and get the 30 day? I just don’t want to go broke and die before I can benefit. I am 59 and have 500k in investments. I am single. Do I even need a LTCI?
You have enough assets to afford long-term care for three months while you wait for the policy to kick in, so why pay more? If there’s no one you want to leave money to, you might not want to bother with LTC insurance. Figure on using up your assets and — if you’re still living — going on what’s left of Medicaid (Medicaid pays the bills of people who need care and have run out of money). On the other hand, Medicaid might be pared down so much that it won’t cover decent care. It’s a gamble on what the taxpayers will do.
My husband and I bought a LTC insurance policy several years ago. Now the company has been downgraded (in ratings) and has been featured in articles about companies that treat their customers horribly by stalling on claims and even refusing reasonable and obvious claims. So what do we do? Change companies – and lose our premium discount for buying young. Decide to quit throwing good money after bad and bail? Since we will both be retired, one could provide some of the care in the last years for the other, the main reason we bought it in the first place was to protect the surviving spouse.
Tough decision. I’d say, hang on. You need it to protect the finances of a healthy spouse if the other goes into a nursing home. After one of you dies, the other can use up all the assets on his or her own LTC if necessary, so LTC isn’t as essential then.
If I may, depending on your age and assuming that you are insurable, you could consider paring down your current benefits with the unstable company (maintaining some coverage at younger age) and diversify with a stronger rated and better historied company. This way you would not have to completely start over. Also, if your 1st policy is tax qualified and premiums continue to increase over time, eventually you probably will be eligible for contingent nonforfeiture (ability to cancel policy and maintain LTC benefit equal to total lifetime premium paid to date). You would then have that 1st policy with no further premiums and the second policy with the stronger company going forward. If insurability is an issue, I would agree with Jane’s recommendation to hang on.
Dear Jane,
Would you recommend that a couple (both 66) with about 7 million in assets, no debts, and no heirs, get LTC. We are on the fence. It is possible that we may buy a bigger home in the next few years and could use more of our money. So, also, how would you answer that for a couple like us with 4 to 5 million in assets. One financial advisor told us we really didn’t need it. The other recommended that we get coverage for about $100/day, just for peace of mind (though he said that we really didn’t need it). What would you say in our case. I have valued your financial writings greatly through the years and started out when I was younger reading your book (Making the Most of Your Money) from cover to cover.
Dee
I sounds to me as if you don’t need LTC insurance. You can easily cover the cost, if you need care. I’m so glad that you found my book helpful!. thanks for telling me.