In the 1980s and 1990s, long-term-care (LTC) insurance seemed a perfect fit for a generation of aging baby boomers who’d begun to worry they might outlive their savings. Elder care attorneys were recommending LTC policies as an essential element of any estate plan. But, according to a recent article in the Wall Street Journal, the promise of LTC policies has not been realized, either by the insurance industry or the policyholders. Here is a brief summary of the problems:
- Higher premiums — When the insurance companies first set their rates, they made serious miscalculations about the length of the average nursing home stay and the cost of healthcare. Additionally, the ultra-low interest rates of recent years have made it difficult for insurance companies to profit from investment income. This led to sharp increases in rates of 45 percent or more — and angered many consumers who bought policies with the understanding they would have level premium costs.
- Fewer benefits — Insurers realize they can only raise rates so high. The only other alternative is to cut benefits. Many companies have bargained with policyholders to limit rate increases in exchange for less coverage.
- Fewer companies in the market — A decade ago, more than 100 companies offered LTC policies, but difficulties earning a profit on the products have forced many carriers to abandon the LTC market and those policyholders who had invested with them.
- Long-term-care costs are common, but not catastrophic — The lifetime risk that a person age 65 will spend time in a nursing home is rather high: 44 percent for men and 65 percent for women. But the typical length of stay is short: 10 months for a man and 16 months for a woman. Studies have found that between Medicare and Medicaid, the wealthy and the poor can ride out a typical nursing home stay without substantial loss in station. It is the middle-class with the most to lose, but they may be able to cope with nursing home costs through a reverse mortgage where they borrow against their home’s equity.
The insurance industry is responding to these issues by offering new products, such as hybrid LTC/life-insurance/annuities. These are complex financial instruments that a consumer must fully understand before purchasing. What works for one individual with a certain financial profile may not work for another.
At Tyrell Law, PLLC, our estate planning attorneys craft a comprehensive estate plan to meet your individual needs. If you’re wondering if long-term-care insurance is right for you, we can assess your circumstances and suggest various strategies to keep you secure as you prepare for old age. Call us at 702-382-2210 or contact our Las Vegas office online.