Long term care insurance why people don't buy it

When it comes to long term care, two facts stand out. First, an estimated 70% of people will need such care, which will be costly. And second, most of them refuse to buy insurance to cover it.

The question is why. Dr. Olivia Mitchell and Dr. Daniel Gottlieb are both professors of insurance and risk management as well as business economics and public policy at the Wharton School of the University of Pennsylvania. Together they began researching the various reasons for not buying LTC insurance.

Part of the explanation, for sure, is that long term care insurance is expensive. Some people may also be assuming, incorrectly, that they will qualify for government assistance to help them pay for nursing home care. Rules are in place to disqualify many who won't meet the strict conditions required.

The doctor's research suggests that a deeper problem may be that consumers are looking at long term care policies in the wrong way. For instance, in a study they conducted recently, they found that many people regard long term care insurance as having no real value if ultimately the payouts aren't needed.

So, instead of looking at long term care insurance primarily as financial protection, many people think of it as an investment, and a bad one at that. They see the premiums as money that would be wasted if the policy owner ultimately doesn't need long term care. They don't think about the catastrophic losses a policy could help them avoid.

Moreover, their research suggests that some consumers' rejection of long term care insurance is based on what psychologists call "narrow framing," or people's tendency to exclude key factors when making decisions. Narrow framing has been found to be common when individuals face complicated decisions; and shopping for long term care insurance is certainly one of those instances.

In their study, they looked at a subset of 1,900 survey respondents in the Health and Retirement Study, a nationally representative survey of Americans over the age of 50. Based on their answers, they classified respondents according to how likely they were to be narrow framers. They then looked at whether narrow framers had different amounts of long term care insurance.

They found that narrow framers were much less likely to have long term care insurance, compared with the average person. Specifically, narrow framers were only half as likely to buy such insurance, a gap that persists regardless of the respondents' health status, risk tolerance, marital status and wealth.

While these findings put long term care insurance providers up against some deep-seated consumer attitudes, they believe that insurers could now better position their products in the marketplace by providing more information to consumers regarding the high probability of needing care, and the high costs of such care.

Insurers could also focus more marketing towards adult children whose parents will likely require nursing home care, since the children are often aware of, and concerned about, the costs and benefits that insurance can provide.

Another approach would be for insurers to emphasize policies that provide benefits in addition to protection for long term care costs. For example, more policies could include retirement income payouts or life insurance, as some insurers already do offer.

While adding such features does make long term care insurance policies more expensive, they help alleviate concerns about policies being worthless if long term care were not needed. In fact, many life insurance companies already take this route by including a savings component that pays out should the policy owner outlive the policy.


John N. Hamling is a vice president at Karpus Investment Management, a local independent, registered investment advisor managing assets for individuals, corporations, non-profits and trustees. Offices are located at 183 Sully's Trail, Pittsford. Call 585-586-4680.

Published: Mon, Jun 27, 2016