Should I Buy Long Term Care Insurance?

The long term care insurance market has changed a lot in the last few years. Many companies have exited the business (Unum, Guardian Life, Allianz, MetLife, Prudential). A few of the companies remaining (Genworth) are not particularly well-rated, having their own financial problems. Meanwhile, policies in place are experiencing huge premium increases. Genworth announced 50% premium increases for pre-2003 policies and 25% increases for new policies, along with lower benefits.

What’s happened? First, the lapse rate, which describes how many people pay premiums but drop their policies before they collect benefits, has been low. And of course, the cost of long term care has risen steeply. That’s meant high claims versus payments. The second factor has been the miserably low earnings that insurance companies are making by investing the premiums. With interest rates extremely low, companies can’t hope to earn even close to their cost increases for this product.

We say: buyer beware. Traditional long term care insurance is in trouble. As fewer companies provide coverage, the market will keep worsening, with the sickest insureds clinging to their benefits and fewer healthy  people signing up for the ever more expensive and scarce insurance. If you do sign up, you could be so squeezed by premium increases down the road that you drop the insurance just as you become more likely to need it. And that’s if your insurer even keeps offering the coverage.

Hybrid life insurance/long term care products may offer some hope, but again, buyer beware. These products are new, just like long term care insurance was once, so insurers really don’t know what their claims experience will be. And the policies are complicated, with varying bells and whistles.

If you can find a group offering at a reasonable price via an employer, consider it. But check into portability and how much the policy would cost if you if you left your employer.

You may be better off saving the money you would pay in premiums to cover your own care. You can control how much you save; and the money will be there for you, unlike a policy which you may end up canceling before collecting a single benefit. Talk to your advisor if you have any questions.