Are Today’s Long Term Care Insurance Policies Right for You?

long term care insuranceThe Wall Street Journal recently ran an article Collapse of Long-Term Care Insurer Reflects Deep Industry Woes. The article focuses on “[t]wo insurance units of Penn Treaty American Corp., which have combined assets of about $600 million and projected long-term-care claims liabilities topping $4 billion,[which] are on track to be liquidated early next year, according to filings in a state court in Harrisburg.” The article explains that “a liquidation is likely to be the second-largest life-health-insurance insolvency in U.S. history by assessments, according to officials with a network of industry-funded guarantee associations. An assessment is the amount other insurers are required under state laws to pay to cover policyholders of a defunct firm.”

Why do long term care insurance policies have issues?

According to the article, “most actuaries badly underestimated costs, and the insurers then met resistance in many state insurance departments when trying to push the pricing miscalculation onto policyholders through steep rate increases. Some states did allow double-digit-percentage increases, distressing the often-elderly policyholders. Sales have collapsed amid the turmoil, and fewer than a dozen insurers sell any significant volume today.”

The reality is that when LTCi policies were introduced 30 years ago insurers were using experience in life insurance as a guide and not health insurance policies. At the time many life insurance policies had many years when policyholders paid premiums and outlived the term (term policies) or paid premiums (for cash value policies) and let the policies lapse. In either event claims were never paid. The experience with LTCi policies was markedly different than expected. Most policyholders in fact kept the policies in force, paid the premiums and a much higher percentage of insureds went “on claim”, causing much higher outlays for the insurance companies.

Further, many early policies had lifetime benefits and 5% inflation riders adding to the cost. During this early period returns on stocks and bonds (and interest rates) were markedly higher than they are today allowing companies to keep premiums lower since the return on those premium dollars was so much more than today. All of these factors contributed to significant losses for the insurance companies.

How Today’s Policies Stack Up

As an elder law attorney for 24 years my recommendations have changed. While policies are more expensive than they were at the beginning, they are generally better policies. They no longer cover lifetime benefits but in general are more helpful when you need them. While I used to be able to recommend them to a wider group of people, today I need to limit the recommendation to those who really have enough assets to protect or are very specific about the care they want when they need it. And today, unlike 24 years ago, you are less likely to have a pension so we have to consider how to pay for this policy in retirement.

You can read the WSJ article in here

About The Author

Robert M. SlutskyNamed One of the Main Line’s Top Elder Law Attorneys by Main Line Today

Robert M. SlutskyRobert M. Slutsky has practiced Elder Law since 1992 and was one of the area’s first elder law attorney. Mr. Slutsky advises clients on Medicaid and Asset Protection Planning, Guardianships, Wills, Trusts, Powers of Attorney, Estate Administration, Special Needs Planning and General Estate Planning. He has represented for profit and non-profit elder care providers and the Pennsylvania Department of Aging. Mr. Slutsky has been the solicitor for the Montgomery County Office of Aging and Adult Services, the Area Agency on Aging for Montgomery County, for over 15 years.