Blogs > Your Money

Dave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics.  Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations.  Readers should consult with their own financial advisors before relying on any information contained herein.

Thursday, October 21, 2010

Long-Term-Care Insurance Getting Tougher to Buy

For many people, buying long-term care insurance is a difficult decision to make. It gets about the same level of attention as planning for one’s funeral. Few like to even think about going to a nursing home. Many just rationalize that they will never need it, putting off what they know is an important decision that could severely impact their financial future.

With people living longer and longer, the odds of needing long-term care are increasing. We provide in-depth information about long-term care insurance to all of our clients who contract for a comprehensive financial plan.

Long-term care should not be considered by those who are either too poor or too wealthy. If you are struggling to just get by in meeting your expenses, you likely can’t afford long-term care insurance. If your net worth is two or three million dollars, you possibly can cover the cost of long-term care yourself (i.e. self insure). If your net worth is somewhere in between, you may be a candidate for long-term care insurance.

Unfortunately, recent news has made the decision even tougher. In the last few months, a number of large insurance companies have either significantly raised premiums for many of their existing policy holders or are planning to (from 10% to as high as 40%). John Hancock Financial has also stopped selling long-term care plans to employer-benefits programs.

According to an article in the Wall Street Journal titled “Long-Term-Care Premiums Soar” (October 16 -17, 2010), the increases are the result of people living longer, generating higher cost claims and canceling fewer policies. The article states that low interest rates have also resulted in less income on investments used to fund the long-term-care policies.

As a result, a decision that’s always been a tough sell is now even tougher. The only option to combat the higher prices seems to be to reduce coverage or increase the waiting period before benefits kick in (i.e. assume more of the cost yourself). What ever you do, be wary of low-cost providers who may not be large enough to be around for the long-term. The way things are going, we worry that even the large companies will stop selling long-term care policies.


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