Long term care insurance provides protection for savings and assets against future long-term care costs, potentially eliminating the need to tap other resources such as home equity or rely on government programs like Medicaid.
However, some may view long term care insurance as an ineffective investment. Let’s explore this topic further.
It’s Too Expensive
Long term care insurance provides a cost-cutting way of covering long-term care services, including homecare, assisted living and nursing home stays. Although purchasing this type of policy has its benefits, there are certain aspects that need to be kept in mind before making your purchase decision.
Long-term care insurance has historically been very costly for individuals purchasing standalone policies. This is partly because people are living longer, leading to more claims and premium increases from insurers; as well as state regulators allowing premium increases on older policies to counterbalance lower interest rates (primarily from quantitative easing by the Federal Reserve).
When people purchase long-term care insurance, they typically select an amount and term length that will cover any potential needs they might encounter in the future. Both factors have a major bearing on what a policy will cost them.
Some long term care insurance plans have set limits on how long benefits will be paid out; other policies cover only a set number of days in either a nursing home or at home, or contain inflation protection provisions which increase policy benefits over time; these features can significantly drive up premium prices.
Medical underwriting is required of most individual long-term care policies in order to determine eligibility. This process ensures that applicants can afford their policies while helping minimize fraudulence claims; unfortunately, due to this requirement some individuals are not eligible for long-term care insurance coverage.
There are group long-term care insurance plans available that don’t require underwriting, typically sold through workplaces or professional associations. Although these may provide less coverage overall, they may provide an economical option for those wanting a simpler process and looking for less hassle in applying.
It’s Too Risky
Consumers considering long-term care insurance must first recognize its inherent risk. Premiums are expensive and the policyholder faces the possibility of losing all or some of what was paid out should they never need coverage.
Long term care policies differ from other forms of insurance in that there is no automatic “financial safety net.” This makes these products particularly risky for older consumers living on fixed incomes, like retirees and widows.
At the core of its current challenges for long term care insurance is inaccurate assumptions made by insurers and regulators when offering new products; mispricing was further compounded by lower lapse rates than anticipated as well as decreased earnings on reserves due to prolonged low interest rate environments.
As a result, some insurers were financial unstable; others were failing to generate sufficient reserves to cover future claims. To mitigate such risks, some companies increased premium costs; this caused those least capable of handling them to leave policies, reducing eligible buyers and forcing many others out altogether by cancelling or allowing policies to lapse without being renewed – effectively forfeiting benefits that they were paying into.
Recently, many long term care insurance plans have been designed with less generous benefits than in the past, which may help insurers cover higher care costs; but it also reduces how much can be spent on benefit payments; many who make use of long term care benefits will likely use up most or all of their savings and may have to turn to Medicaid to pay for care costs.
These factors have resulted in a decrease in popularity for stand-alone long term care policies, with consumers opting instead for hybrid life insurance plans which combine death and disability coverage with an annual lump sum that can be used for care expenses. Unfortunately, however, these hybrid policies tend to be less flexible than their traditional counterparts and still do not provide an adequate solution for those needing long-term care coverage.
It’s Too Limited
Many approaching age 65 will require long term care of some form or another, and its costs can be extremely expensive. Unfortunately, few will be able to cover these expenses out-of-pocket or by depleting retirement savings; many must rely on Medicaid, the primary funding source for long term care services, which could come under severe strain in future years.
Consumers seeking protection against the high costs associated with long-term care are increasingly turning to long term care insurance (LTC). Unfortunately, traditional stand alone policies offer few coverage options that meet this standard – which makes their cost prohibitive as well.
Due to these restrictions, some are opting out of LTC insurance altogether and instead looking into hybrid life policies which offer both death benefits and long term care coverage – these products have proven increasingly popular as they can offer substantial coverage at lower costs than traditional long term care policies.
As insurers strive to reduce premiums as much as possible, their long term care insurance policies are becoming less generous with benefits. Policies often limit the length of time the policy covers or restrict what type of care it pays for – for example only covering nursing home stays or certain forms of home health care services. Some hybrid policies offer “no lapse guarantees”, meaning if an insured doesn’t use their benefit during their lifetime they’ll get all their premium back.
Insurance agents are doing all they can to assist consumers navigate the complexities of long term care services by offering alternative solutions. Some agents are offering products which enable married couples to purchase one policy with double the coverage; others suggest products like Nationwide’s YourLife Universal Life with Long Term Care Rider, which offers both permanent death benefit coverage as well as flexible premium payments so as to cover long term care services or lower the required premium payment periods for maintaining policies.
It’s Too Unaffordable
Long term care insurance provides the ability to access care without depleting savings and assets; protecting loved ones from having to spend their own funds towards your care costs. Furthermore, this option gives you greater choice than settling for subpar Medicaid-accepting facilities.
Your insurance costs depend on factors like age, coverage selected and whether or not an inflation protection benefit is included in the policy. Therefore it’s wise to work with an experienced agent who can guide and educate you through all available options.
Most insurers provide different policy designs to meet individual needs, for instance policies that allow beneficiaries to increase daily or monthly benefits over time to keep pace with inflation may require an annual premium payment; be sure to carefully weigh up all the potential costs and benefits before making your decision.
Another strategy for purchasing long term care insurance policies can be purchasing one with shorter coverage durations, for instance a three-year policy can cost about one third less than traditional long term care policies that pay benefits indefinitely. Furthermore, many insurers now provide hybrid policies that combine life and long term care coverage; these may provide an excellent solution for anyone concerned about its potential financial effects on beneficiaries.
Though these strategies may help lower the overall costs of your policy, they won’t guarantee an affordable long-term care solution if something arises that requires care that you must pay for out of pocket. Furthermore, spending down assets to qualify for Medicaid could leave your family with nothing at the end of all their sacrifice.
Long-term care insurance policies can protect both savings and assets against the rising cost of long-term care, while providing peace of mind to both you and your family. But before making your choice, it is essential to carefully consider all available options before making a final decision.