Claude Solnik, The Daily Record Newswire
Long-term care insurance is becoming more expensive, and not simply because of the rising cost of care.
More claims and increased longevity of payouts are driving some insurance companies out of the business, leading to fewer options and higher rates. A basic policy today would cover between $275 and $300 a day or roughly $9,000 a month in benefits. But the rising costs could mean care will soon outstrip those amounts.
As more people look into this insurance, they're finding rates are far higher than they were had they bought the policy five to 10 years earlier. And as the population ages, making these policies even more useful, policies become tougher to obtain.
"There's been a significant consolidation in the industry, because of mispricing," said Robert Kilroy, a wealth management adviser and certified financial planner at Northwestern Mutua. "Rates have been going up on new products."
Insurers underestimated the cost of paying out for these policies good news for those who are already insured, since they're typically receiving coverage at lower rates than they could if they signed on today.
"The industry is starting to change," Kilroy added. "They're-pricing these policies differently than they did 10 to 15 years ago. Claims experience is relatively high."
While The Hartford and MetLife remain among the big players, many smaller firms have exited, stopped writing new policies or jacked up rates to keep pace with claims.
"There's less competition out there," said Dan Yu, managing principal of EisnerAmper's wealth management practice. "When they first designed these, the anticipation was when someone got into a [long-term care] facility, they would live there 24 or 36 months."
But, Yu added, in actuality, claims are lasting much longer than that.
Coverage typically includes nursing homes, home health care, adult day care, assisted living, respite care and hospice care.
More than 40 percent of people aged 65 or older as of 1990 will enter a nursing home, according to the New York State Department of Financial Services. Nursing home costs average $398 per day and $145,344 per year on Long Island, according to the agency. And, unfortunately for many, Medicare doesn't cover most long-term care services. Medicaid will pay for long-term care, but only after people exhaust most of their assets.
New York State provides a 20-percent tax credit, but that can still leave patients on the hook for thousands of dollars or more of long-term care costs.
Long-term care insurance has only been widely available for about 30 years, making it much newer, and therefore less known, than other types of insurance.
"People aren't as familiar with it," Kilroy said. "The problem right now is education."
Not everybody is best suited to these policies, which can result in no benefit for the insured or their benefactors. When someone dies, heirs get payouts from life insurance, but long-term care policies don't come with a guarantee.
"You could theoretically buy a long-term care policy and die in your sleep without needing long-term care," Kilroy said.
And, as Yu notes, there's a small sweet spot for those who can afford and actually need the coverage. People with less than $1 million net worth typically can't afford policies, he said, while those with more than $3 million typically can pay for their own care.
"You have to assess whether you need it," Yu continued. "It's like any insurance. You want to cover what you can't absorb, but you don't want to over-cover yourself and waste money."
Yu said timing is crucial in deciding when to get a policy and in terms of holding down costs. He suggested buying just before turning 60, since rates typically spike at that age, followed by another big hike at 65 and smaller increases after that.
Even if people want policies, that doesn't mean they will qualify. A woman in her 50s with osteoporosis, for instance, could have trouble getting a policy despite her age.
"At the end of the day, having a smaller long term care policy that's affordable to you is better than having none," Kilroy said.
Published: Mon, Sep 08, 2014
