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Long Term Care

What Is Long Term Care Insurance, and How Has It Changed?

Three of the most feared, avoided, and misunderstood words comprise one single phrase- LONG TERM CARE. Defined simply as assistance with activities of daily living (Bathing, Eating, Dressing, Toileting, Transferring, Continence) or with cognitive impairment care needs, Long Term Care has largely been left for all individuals to fend for themselves or for state Medicaid programs to try to fund…which they cant. 96% of all Long Term Care is custodial in nature, which is purely stand by assistance…guess how much is protected in Medicare for Custodial care for those over age 65? ZERO.

In the 1990’s and into the early 2000’s, the insurance industry made a hard entry into helping Americans with a “button to press” in the event Long Term Care (LTC) services are needed for family members. The Federal Government also came out with policies (underwritten by John Hancock and Met Life) further validating the need and reason to insure. Policies were made available for people to unload some of the possible care cost risk with variables such as daily/monthly benefit amounts, lengths of benefit, how long to wait before benefits are paid during a claim, and inflation protection. Millions of premium dollars were written over a 10-15 year period but then, almost overnight, the new policy sales halted and Since around 2010, major carriers such John Hancock, Met Life, GE Capital, CNA, Unum, Prudential and others jumped ship and have left the business. Most still will service claims for policyholders but we are left with a major void of available options and even fewer insurance agents to help guide the public…What happened?

Unlike life insurance which uses mortality tables to determine life expectancy which can then be used to create fixed price term or permanent life insurance policies, LTC creates a moving target depending on health issues and there is simply no accurate tool that actuaries have found to appropriately price LTC Insurance. Therefore, also different from Disability Insurance where we have finite benefit payout periods based on working age adults, LTC policies have no fixed pricing models and existing policy holders have been hit hard with 10% to over 100% price increases. So, again, what happened?

All carriers missed the mark on numbers of people who would go on claim. All carriers missed the mark on how long benefits would need to be paid out. All carriers who issued unlimited/lifetime benefit periods began to see rising claims with alzheimer’s situations averaging 8 ½ years or longer. And lastly, very few people dropped policies compared to far lower estimates that would have removed risk from their portfolios. The result was that most carriers left the traditional market and hybrid policies that offer life insurance with access to LTC benefits were introduced as options. Often VERY smart and great alternatives to the common traditional LTC objection of “what happens if we pay premiums for LTC Insurance and never use benefits?” With the life insurance plans, someone will get those premium dollars back, either the insured via accelerated death benefit for LTC or the beneficiary of the life insurance. But these plans are often still very expensive and more than the traditional LTC insurance costs despite the increased premiums for new purchasers. Stay tuned for our next blog on how to pay LTC Insurance premiums using 1997 Tax Legislation that allows businesses and owners to deduct all or some of the costs.