Long Term Care Insurance May Become a Thing of the Past

It seems that the insurance companies really boggled it when it came to pricing out long term care insurance policies.  Long term care policies have been hit by a triple whammy - historically low interest rates,  policy holders living longer, and policy holders not dropping coverage at the rates the insurance companies expected.

Some of the huge insurance carriers have washed their hands of the whole situation and have left the market.  Prudential Financial, Inc. announced earlier this month it would stop selling long term care policies to the individual market.  MetLife ended sales of  long term care polices in 2010.  Unum announced In March 2012 that it would discontinue sales to employees of corporations.  Over the past 5 years, 10 of the 20 largest writers of long term care have exited the market.

John Hancock, one of the top 5 largest writers of individual long term care policies isn't exiting the business, but is actively trimming its book of business as it is asking each state to allow it to hike the premiums for existing customers by an average of 40%.  Elderlawanswers.com reports that in one case an Illinois couple received a premium increase showing a 90% hike, from $3893.40 a year to $7385.52 per year (see The Chicago Sun-Times).  

I find this a bit outrageous.  The policy-holders have paid into their policies all these years and held up their end of the bargain - I pay you money today, and you pay me money tomorrow if I get sick and meet all of your other requirements.  It looks as if the insurance companies are fearful that, oh no, the policy holders might actually (gasp) try to collect on the insurance polices for which they have been dutifully paying their premium all these years.  So, to prevent that from happening, we will tell people that are living on a fixed income (which also hasn't seen any increases due to the low interest rate and inflation environment) that they will either pay up to 90% more, or we will cut them off and all that money that they spent will be for naught.

Now I am not saying the insurance companies can't do this, of course they can, it's in the contract.  What I am saying is that it is the insurance companies, the experts in defining the risk the themselves, who made the "bad deal", and they are the only ones who profit, because they got all those premiums and never had to pay out on all the people who will be forced to cancel their coverage.

As a taxpayer, I find this particularly disturbing, because there are 3 ways to pay for long term care - you money, long term care insurance, and Medicaid.  In this situation the people who tried to plan for their own care by getting long term care insurance, which is precisely what we as a society would like people to do - plan for their own needs - are going to end up dropping coverage and perhaps ending up needed Medicaid to pay for their care.

As an attorney, I counsel people to consider long term care as a responsible investment in their future.  I don't sell it, I don't get compensated in any way when somebody else sells it, but I have seen families have oodles of more options when dealing with long term care issues when those very high costs can be offset by new dollars coming in.  I just can't help but feeling that the stupendous increase in premiums is like the trick where you try to pull the tablecloth off the table, but everything comes crashing down.

Image: sscreations / FreeDigitalPhotos.net

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Sandra Bello - March 27, 2012 2:27 PM

As a planner who oftentimes looks into these benefits for our clients, its deeply concerning to have seen the "mass exodus" as I like to call it over the past few years. The only silver lining I have seen is for those clients that have a "10 Pay" or Guaranteed Rate type of policies, where they are not subject to such increases. Long Term Care will inevitably become inaffordable and the necessity for hybrid products that some companies such as John Hancock and Lincoln have recently introduced (such as the LifeCare and Moneyguard lines) will make way for healthy individuals to have some sort of coverage.

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