Americans are living longer, which means they are thinking more about their care in later life; and the cost of care is rising faster than the cost of living.
LTCI tries to capitalize on media attention to increasing life expectancy and the high cost of nonfamily long-term care, stocking the fear that without LTCI you will be unable to afford the care you need. In its advertising, the industry hints that an extensive period of paid long-term care (particularly nursing home care) is inevitable and that the result will be not only to wipe out your family’s savings but even to put you “on the street”.
A basic LTC policy does not provide much protection, and a policy with good terms is expensive.
In order to get a decent price on a good policy, you would have to buy it before the age of 60, and pay premiums for decades.
Most LTCI policies contain restrictions and conditions that significantly limit coverage and the ability to collect it.
Most importantly, because most people will never need a long period of intensive, paid long-term care, the odds are high that you will never collect much, if anything.
- 50% claims to these policies are for people who are on their 80s.
- 40% claims are from people on their 70s.
Consider Combining LTCI and Life Insurance
For many people interested in long-term care insurance, the cost/benefit analysis of a stand-alone LTCI policy does not make good financial sense. Those same people, might also be considering purchasing a life insurance policy or already have life insurance. It may be possible to combine life insurance (a permanent policy, not a “term” policy) with LTCI while reducing total costs. Sales of these combination insurance policy have risen considerably over the past few years, while sales of traditional LTCI policies have fallen sharply.
Purchasing a new combination policy.
People in their 50s considering purchasing life insurance and LTCI, investigate policies that include a combination of both types of coverage. (When you’re on your 60s, these policies becomes too expensive for most people). These policies are structured in different ways, but essentially an “accelerated death benefit (ADB) rider added to life insurance allows you to draw out amounts that you beneficiaries would have collected upon your death (up to the limits of the policy). These amounts can be used for long-term care. Of course, this means that whatever amount you take out for long-term care will not go to your beneficiaries upon your death.
Some insurance industry statistics claim that 65% to 70% of all people over 65 years old will “need care”. But how much care are you likely to need? And what sort of care? According to other, non-insurance industry studies, 80% of all long-term care is informal, unpaid home care. And of paid care, less than 20% is for nursing home costs.
The insurance industry claims that women over 65 “use” long-term care an average of 3.5 years and men “use” care for an average of 2 years.
For people admitted to a nursing facility when they are age 75 or older-which is when most people enter nursing homes – nearly 80% stay less than one year.
The insurance industry sells its policies with the “promise” that the benefits will be there when you need them. For all LTCI claims paid over the 35 years up to 2012, the average total payout was $48,000. That does not count people who never needed to file a claim and got a payout of $0. Nor does it count that about 25% of claims where denied by insurance companies. Approximately 10% of LTCI policyholders find their payments too much within the first year and LTCI regularly attempt to raise monthly rates for existing policies, driving more people to drop their coverage.
As a result of LTCI’s high cost and the growing public awareness of its limited returns over the first 2 decades, sales of LTCI policies have dropped over the last 10 years.
Warnings about insurance practices.
Shopping for any kind of insurance can be a daunting task. You have to read the fine print, compare the rates and benefits of different policies, and figure out which policy will best meet your individual needs. Here are a few additional things to keep in mind when you’re researching:
- Beware of pretty promises: too often a company flashes what seems like high benefits for low premiums, plus a promise that the premiums will never rise. Unfortunately, the fine print always permits the insurance companies to increase premiums one way or another -and they will.
- Beware of brochures and agents. These decives are intended to get you interested in insurance policies and convince you how great they are -not to explain their pitfalls or even accurately explain how they work. Brochures generally not detailed enough to bind an insurance company to anything in particular, so you cannot rely on their glossy promises.
Insurance agents are in the business of selling policies, not of warning you why you should not buy one. Although most agents are conscientious about not selling a policy they know is not right for a customer, some wills ay things carelessly during the course of trying to make a sale. Other agents may sell you a bad policy simply because they do not know better.
In general, an insurance agent as opposed to a broker, represents only one company or group of companies. They might know their product, but cannot compare their premiums and coverage to those offered by another company’s policies. If you have received information from one company’s agent, even if the agent has shown you all of that company’s policies, be sure to investigate several other companies’ policies as well.
An insurance broker, as opposed to an agent, works independently and can offer policies from a number of different companies. A broker can probably show you a somewhat wider selection of long-term care polocoes than could an agent who works for only one company. However a broker may not know very well how all the different policies operate. And a broker cannot make binding promises on behalf of the insurance company. If the broker contends that a policy operates in a certain way, be sure you see it in writing on the policy or in official correspondence from the insurance company to you.
Beware of Mail-Order and Limited-Time Policies.
All the one-time only offers are usually misleading nonsense. The best advice may simply be to avoid buying any policy touted in an advertisement that uses an exclamation point. If it is reputable insurance company with legit offer, the same terms will be available to you at any time.
Why Elders are Easy Fraud Targets
Long life, limited funds. It is now common for people to live a long time. And the cost of long-term care can be staggeringly high. Many seniors are afraid that their savings will not be enough to support their lifetime needs. As a result, they may be too quick to respond when someone offers a scheme promising to dramatically increase their assets.