We know the long-term care (LTC) insurance industry wants to storm America with its expensive and nebulous products, but few "experts" present a complete picture: the economic downsides of LTC insurance, the alternatives, and the possibilities for better insurance products in the future.
Here's a truer picture of your possible future as an LTC insurance customer:
"The John Hancock Life Insurance Co. just asked insurance regulators whether it could increase premiums by, on average, a whopping 45.9% on some 8,600 long-term care insurance policies now in force in Connecticut. And, if approved, annual premiums on those policies will rise from the current range of $950 to $2,500, to a new range of $1,246 to $3,280. Experts says older policies, especially those that have a lifetime benefit and include a 5% annual growth compound option, are the ones most likely to have rate increases." (USA Today: March 16, 2014)
Consider this hypothetical scenario: At age 90 and now facing deteriorating health, I am aghast at the spurious new LTC insurance rates, which I’ve been paying for almost thirty years. I can no longer afford the premiums, which have been jacked up more than 100 percent during the life of my policy.
What am I going to do? I can cut policy benefits in half to keep the policy active.
Or, how about taking the same initiative that I can with inflated health insurance or automobile insurance policies I no longer can afford: I can shop competitive companies in an industry with a lot of competition! The marketplace works for me.
NOT going to happen with LTC. I'm too old at 90. No other insurance company would sell me LTC insurance, certainly with premiums less than I'm now paying. So I'm stuck. My original LTC insurance company holds all the cards and I lose. The marketplace works against me.
An insured faced with spurious LTC rate increases can exercise a non-forfeiture clause or "modify the benefits." What does that mean in insurance lingo?
"Often a nonforfeiture clause will only stay in effect for a certain time period or it may only become active if the policy has been in force for a certain amount of time."
So these clauses can be full of insurance company caveats and exclusions.
An insured could lower the policy benefits to keep rates affordable, but at what point do the benefits paid out recompense decades of insurance premium investments, especially when, for economic necessity, those benefits must be reduced late in the life of the policy?
Prospective LTC insurance buyers, you have alternatives to consider.
Self-fund your possible future LTC needs instead of buying insurance. Allocate some of your savings just for long-term care. You may not need the monies, but if you do you have a backup plan.
For those without savings, there's another option.
Medicaid’s Personal Care Option Program is available in some states to those who qualify and require assistance with activities of daily living, including chronically disabled citizens, whether elderly or not.
Medicaid will compensate caregivers, which can be family members or even neighbors under external supervision, for such services as meal planning, grooming, dressing, feeding, errands, transportation to medical appointments, light housekeeping and more. With supervised and compensated care, beneficiaries remain at home and engaged with their families and communities.
This is in lieu of a nursing home-only option and actually a smart response to demographic, economic, and socio-cultural facts.
Many articles about the virtues of long-term care insurance are now appearing in financial media almost daily. Some of these “objective news articles” are actually native advertising, not true journalistic examination. In other words, these articles have been written by independent experts who are actually promoting the LTC insurance industry: incomplete and biased.
Prospective LTC insurance buyers … be wary.