Monday, November 8, 2010

Is Long-Term Care Insurance Worth It?

Last week a friend of mine said her long-term care insurance premiums had suddenly gone up by 39%. When she called her insurance company to see if this was a mistake, their answer was "no." It seems that people were beginning to actually make some claims and use the benefits of the insurance. Well, that suddenly hurt profits, so MetLife (the company in question) asked the State of Connecticut if they could raise their rates. The state said "yes." This is happening all over the country.

Shortly after I had this conversation, I read an article in the New York Times on the sudden increase in long-term care insurance premiums. Obamacare was partly to blame (due to several new regulations buried in the law). But there were other factors, too. It seems baby boomers aren't buying the insurance. In fact, sales are flat to down. Why? Some answers were in the Times article and others in a report by Milliman (an insurance consulting company).

Most people realize that our government indemnifies most of us from the catastrophic costs of a nursing home, home-health care or assisted living through Medicaid. You don't even have to give up your house, car or personal possession to qualify for Medicaid (in most states). The vast majority of older Americans qualify because they don't have a lot of savings and investments outside their homes. And those that do, have figured out ways to protect their estates.

In addition, the chances of needing the care are not as great as one would think. For people over 65, there is only a 45% chance that you'll make a claim. Not only that, only 14% of people stay in a nursing home more than three years.

So, if you can afford to pay $83,500 or more a year on a nursing home for three years, buying the insurance might not make sense. Long-term care insurance can cost $2,500 per year for a 60-year-old. But if rates continue climbing at 40% per year, that could be a lot of money to give up for a 45% chance you'll need it when you're in your 80s. Even if you do, the insurance may not pay all the bills.

The NY Times article and the study by Milliman give many more facts, opinions and food for thought. They are both worth reading prior to making any decisions about buying long-term care insurance. When looking at long-term care coverage, see how much they will pay out and for how long. Weigh the costs and benefits for yourself. Would your premiums earn you more if invested in stocks or bonds?

http://www.nytimes.com/2010/11/05/business/businessspecial5/05CARE.html

http://www.centerltc.com/milliman_cltcf.htm
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