Changes for Long Term Care Insurance

Long-term-care (LTC) insurance is designed to help you pay for care (such as in a nursing home or assisted living facility) when you are no longer able to care for yourself. As life expectancies increase and the cost of a stay in a nursing home rises, many people are looking to LTC insurance to provide a safety net in their old age. But the long-term-care insurance industry faces a number of challenges which are forcing changes that could affect both current policy holders and those who might want to buy coverage in the future.

A Difficult Economic Environment

Insurers who offer long-term-care policies face a difficult economic environment, which is affecting their ability to offer policies. The low-interest-rate environment means decreased investment returns for insurers. That, in turn, means that premiums are increasing, both for new and existing policies. Currently, rates are 30 to 50 percent higher than they were just three years ago, according to the American Association for Long-Term-Care Insurance.  At the same time, ratings agencies are also downgrading insurers that offer LTC insurance. Other issues include lower lapse rates than expected, increased regulation and the possibility of expensive lawsuits, all of which can lead to increased prices.

As a result of changes in the industry, some carriers have exited the long-term-care insurance market completely. High-profile companies like Prudential and MetLife no longer offer long-term-care policies (though major names like Mutual of Omaha, Genworth, MassMutual and Northwestern Mutual still sell coverage). Fewer insurers and higher prices mean that it’s getting more and more difficult to buy a long-term care policy.

Buying Long-Term-Care Coverage Is Getting Harder

In addition to increasing premiums, insurers are become more selective about who they will cover. Underwriting standards have tightened considerably in recent years. Smokers, people with insulin-dependent diabetes, kidney problems, circulation problems and people who are overweight may find it more difficult to buy a policy. Some insurers may require blood tests or take a close look at applicants’ medical records in order to identify those people who are likely to make expensive claims.

Another major change on the horizon is the shift to gender-distinct pricing. So far, four major insurers (Genworth, Transamerica, John Hancock and Mutual of Omaha) have announced their plans to change men and women differently for long-term-care insurance. Single females will see huge increases in premium prices—up to 40%. Insurers want to charge women more since they’re more likely than men to actually make a claim. Those increases will put policies out of the reach of many people who want them.

Get Expert Guidance When Planning for Long-Term Care

Long-term-care insurance is one way to protect your assets and manage healthcare costs as you age. After all, it’s estimated that by 2050 roughly 27 million Americans will be reliant on paid long-term care, according to the Family Caregiver Alliance, and there’s a chance that you could be one of them. But LTC insurance is not the right choice—or even an option—for everyone. If you can’t afford or don’t qualify for a policy, you can consider alternatives such as self-insuring (in other words, setting aside money to pay for long-term-care expenses out of your own pocket).

Whether or not you end up purchasing insurance, planning for long-term care goes hand in hand with your larger financial and retirement planning goals. In many situations, it can be helpful to meet with a financial advisor who is familiar with long-term care. He or she can help you evaluate your options in light of your overall situation and then work with you to design a plan for meeting your future long-term care needs.

by Chris Cooper, CFP®

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