Going Long

There have been a number of articles about long term care (LTC) insurance recently in various financial planning related publications. Why? Because a lot of change has been taking place in the LTC insurance market over the last several months.

Premiums are going up. Coverage features are changing or being eliminated. At least one provider is considering charging women higher premiums than men for coverage (according to a Wall Street Journal article). Some insurance companies are no longer offering individual policies.

Long-term care insurance coverage can provide various services, in-home care, assisted living care or nursing home care when you are no longer able to care for yourself or a loved one.
Medicare does not provide long-term care and Medicaid options may be very limited.

A major reason for the rise in premiums is the current low interest rate environment of the United States. Essentially, because rates are so low insurance companies have not been able to earn the necessary return on investment of premiums to adequately cover payouts when a policy holder begins drawing on their insurance. Additionally, the insurance companies must plan for a continuing low rate environment. So, premiums have been raised in order for enough money to be available for future payments. Additional factors driving higher costs for coverage are higher medical costs and more policy holders than expected making claims on their insurance.

Long-term care insurance can be an expensive proposition no matter when it is purchased but it is also prudent in many cases. The earlier and younger you buy LTC insurance the lower the premiums. However, that also means you will potentially be paying premiums for a long period of time. So, considering long-term insurance can present a true dilemma: Do you buy it early so that it is cheaper and you are more insurable, or do you wait a few years so that you are not burdening yourself with an expense whose payoff is, most likely, far in the future. The middle road is probably best, acquiring LTC insurance sometime during the years leading up to retirement. It is possible health or medical issues prior to purchasing LTC insurance may make you uninsurable so that must be part of your consideration.

Some things to consider in order to keep costs down: the length of the waiting period before coverage begins and the benefit period – how many years of care will be provided by your coverage. Also, couples purchasing coverage at the same time may get a discount.

If you are considering long-term care insurance be sure to include inflation protection in your criteria. This provides protection from rising costs by increasing coverage by a percentage every year. 3% to 5% is recommended, but the higher the percentage chosen the higher the cost of the protection.
It is possible policy costs may drop, or at least be stable, in coming years if interest rates rise leading to insurance company investments earning greater returns.

As with any consideration of additional insurance guard against creating a financial burden by having too much elective insurance in place. Think about what is best in your current situation and give thought to whether long-term care insurance is something you may need to add to your financial plan in the future. If your retirement nest-egg will be large enough you may not need to have LTC insurance. But having coverage may enable you to retain more assets for your heirs or your estate.

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