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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.

Saturday, November 13, 2010

Another Blow for Long-Term Care Insurance

In one of our recent blogs titled “Long-Term Care Insurance Getting Tougher to Buy” (Thursday, October 21, 2010), we noted that insurers were significantly raising the premiums on long-term care policies.

Buying long-term care insurance has always been a difficult decision for many people. To begin with, no one wants to think about losing their independence and having to move into a nursing home. On top of that, with few Americans saving sufficiently for retirement, budgets have little room for the cost of long-term care insurance.

At the time of this writing, an article in the Wall Street Journal (“MetLife Steps Back from Long-Term Care Market” by Erik Holm and Anne Tergesen, November 12, 2010) makes us wonder about the viability of long-term care insurance. The article notes that MetLife, one of the bigger sellers of the coverage has just announced that they will no longer offer long-term care insurance to their customers.

Insurers have found it more difficult to make money on long-term care policies due to several factors. One is that with interest rates so low, they are unable to make enough by investing premium dollars to cover the cost of the benefits. The article also noted that people are hanging on to their policies longer than expected. Assumptions regarding the number of purchasers who will let their policies lapse (i.e., quit paying premiums and forego the policies) have proved to be higher than expected. And, with people living longer than in the past, the cost of benefits is rising significantly.

In our previous blog we noted that John Hancock had announced price increases up to 40% for its policyholders. Other companies have ceased selling the product. Yet still others are holding their ground. The Wall Street Journal article notes that “New York Life, which has sold the product since 1988, said it has never raised rates for customers once they have purchased a long-term care policy.” While this is encouraging, the increases in prices and decision to stop selling the product altogether by some insurers, gives one little confidence a policy will be viable, long-term. Will long-term care insurance be a short-term product?


Anonymous Jesse Slome said...

Between 40% and 60% of the necessary dollars come from investment returns and for every 1% drop in long-term interest rates, an insurer needs a 10-to-15% premium increase. So, yes, today, rates are higher than they have been. So is gasoline.
None of this changes the risk people face or the fact that whatever government programs exist in the future, they will be leaner and more means-tested than ever. Yes, someone buying long-term care insurance today may not be able to afford first-dollar, last-dollar coverage. That has changed. But the viability of this product to give people choice, control of their care when they most want it hasn't.

Lastly, the long-term care insurance industry pays out $6 billion a year in benefits to over 180,000 claimants across the U.S. That needs to be part of the story as well -- (good news doesn't sell newspapers, I know).
Jesse Slome
Executive Director
American Association for Long-Term Care Insurance

November 13, 2010 at 12:58 PM 
Anonymous Carla Jones said...

I found this article very up-to-date and informative as it provides excellent tips to obtain the best possible long term care insurance rates and quotes. With this handy information, you are able to make your decisions more wisely and obtain the best long-term care insurance plan for yourself. It highlights the importance of having long term care insurance especially for the people above 65 years of age in helping them to plan for their long-term care needs.

January 28, 2011 at 4:23 AM 

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