The Disappointing Truth about Long-Term Care Insurance

 

January 20, 2015

 

I often have clients tell me wonderful stories of how long-term care (LTC) insurance provided for an elderly relative or friend when they really needed it. Shouldn’t I get coverage for myself, they ask?

 

The short answer is that we generally advise against it. I’ll explain why, but first, what is LTC insurance? These policies pay a capped daily amount for services to help you with basic activities such as bathing, dressing and eating, if you are left unable to perform those yourself, such as after a stroke or with advanced-stage dementia. Depending on the policy, it might also cover other types of skilled care and apply to care in your own home or a nursing facility. The difference from ordinary health insurance is that LTC is designed for long-term help, where the insured may not realistically be expected to get better over time.

 

The disappointing truth about LTC policies is that, while many early adopters did benefit from them, they are not such a good deal anymore. Since it was a new form of coverage, insurers initially underestimated how much they would have to pay out, and underpriced their policies as a result. Having learned their lesson the hard way (through a hit to their profits), insurers have now adjusted in various ways:

 

  • Many companies simply left the market. The number of firms offering LTC coverage has declined from around 100 at one time to only a handful today.

 

  • Companies that do offer coverage have scaled back on exactly what their policies will cover. You could find yourself in a dispute over small print when trying to get an insurer to pay. And you should expect to pay for any bells and whistles in your coverage through a higher premium.

 

  • Fixed premiums are extremely hard to find now. And as your premium rises with age, if you can no longer afford it you might lose all the money you had invested in a policy.

 

The final verdict on LTC insurance? Our usual advice is to take the money you would have paid into it and put that into an investment asset instead. That way the money can be there to help if you need it. You might end up with more money that way than if you had an LTC policy.

 

As we get older it’s hard not to worry about things like losing our ability to live independently. But at PARTNERSINWEALTH we help you arrange your complete financial life so that you are prepared for challenges. That’s the way to put your mind at ease, so you can fill it with gratitude for what you have instead of worry for what may or may not come. To learn more about us, please contact Jim Waters, CFP®, at 713.964.4028 or jrw@partnersinwealth.com.