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The Long-Term Care Dilemma: Insurers Leaving, Premiums Increasing

May 2, 2012 by Blue Ridge Leader filed under Amy and Dan Smith, Columns No Comments
Amy Smith-BRL

If you’ve planned for long-term care, you’ve done well because there’s a pretty good chance you or your spouse will have a need for care at some point. According to the National Clearinghouse for Long-term Care (www.longtermcare.gov) about 70 percent of people over age 65 will need some type of care during their lifetimes and more than 40 percent will require care in a nursing home.
According to the National clearinghouse, in 2010 it cost an average of $75,000 per year ­for a semiprivate room in a nursing home, while one year of care at home costs about $19,700 per year.

The Life Insurance and Market Research Association (LIMRA) estimates over seven million Americans have LTCI. However, the U.S. Census Bureau estimates that in 2010 there were over 40 million Americans age 65 and older. So only a small percentage of those who face the increasing prospect of long-term care have LTCI.

Companies leaving the business

In spite of the apparent need for LTCI, some of the largest providers of individual LTCI have either stopped selling individual LTCI or they’re planning to do so, although some of these carriers will remain in the group LTCI market.

So if the need for LTCI remains, why are some of the biggest insurers getting out of the individual LTCI market? There are a number of reasons such as poor investment returns due to the chronic low interest rate environment, the fact that more policy owners are keeping their insurance instead of letting it lapse, the rising cost of long-term care, and the fact that people are living longer, leading to larger LTCI payouts.

If your LTCI carrier is getting out of the LTCI business, don’t worry-you’re still covered. Generally, insurers that leave the LTCI market must either continue to service existing policies or transfer that responsibility to another carrier.

Your LTCI premiums may increase

If you purchased your LTCI policy more than a few years ago, you could be in for a surprise when you get your next premium bill. Several states have allowed their insurers to increase their premiums. If your premium does increase significantly, you may be faced with a dilemma: Do you keep the insurance and pay the higher premium or should you stop paying for the insurance altogether and lose not only the insurance coverage but also all the prior premiums you paid?

Here are some alternatives to consider:

  • Shorten the length of your insurance coverage. For example, if you have lifetime coverage, decrease it to three or five years. The National Clearinghouse estimates women need care on average for 3.7 years while men need care for about 2.2 years.
  • Drop or change your inflation protection. This provision can almost double your premium in some cases. Depending on how long you’ve had your policy, your daily benefit might have increased enough over time to allow you to lower the inflation protection from say five percent compound to three percent simple interest and lower the cost for that protection or drop the inflation coverage completely.
  • Consider replacing a current costly policy with a new one. Even though you are older, you may find that today’s carriers offer fewer “bells and whistles” and at a lower average cost.

Amy V. Smith Wealth Management, LLC, is an independent firm. Amy is a Certified Financial Planner (CFP) and Certified Investment Management Analyst (CIMA) and offers securities through Raymond James Financial Services, Inc., member FINRA/SIPC. Her office is located at 161 Fort Evans Road, NE, Ste. 345, Leesburg, VA 20176. www.amysmithwealthmanagement.com. The opinions and recommendations here are those of the columnist. Content Prepared by Broadridge Investor Communication Solutions, Inc. copyright 2006-2012 Broadridge Investor Communication Solutions, Inc. All rights reserved.

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