Hope For Long Term Care Insurance

Every great once in a while, the interests of an insurance company and a policyholder coincide and we all say, “Hallelujah!”

Much of the general public isn’t aware that such a coincidence of interests is a possibility. More and more Baby Boomers are wondering how to protect themselves against the vagaries of old age. The good news is that we are living longer, sometimes healthier lives. The bad news is that the cost of caring for older people is fast expanding. Solutions are hard to come by.

Add to this that long term care insurance, as we knew it just a few years ago, is a thing of the past. The cost of such insurance has exploded and many companies are just not writing it any more. What to do?

One solution receiving an upsurge in interest is a new, modified method of paying for long term care protection – using life insurance benefits to help pay the high cost of living in a senior residence or a nursing home.

Generally the way it works is that the policyholder uses a part of a life insurance death benefit now to help pay his or her assisted living or nursing home costs. It is a trade-off between the life insurance benefit and the burden of present living costs.

So, what the insurance company pays for the policyholder to live in a nursing home today is subtracted from what the policyholder’s beneficiary would get tomorrow on the policyholder’s death. Of course, there is a reduction in the total benefit to sweeten the pot so the insurer will have an interest in making the deal.

By means of this method, cash-strapped senior policyholders are able to meet their heightened living costs by deducting them from their eventual life insurance payout. Such a system can be tough on beneficiaries but it certainly eases the sometimes harsh burdens of later years for their benefactors.

The arithmetic of such a deal is complicated with the parties having to weigh the relative values of present circumstances, i.e., age, health, payment amounts and payment schedule, among other items before coming to a decision. The closer death seems, the more likely the insurance company will be to cooperate to get a reduction from the policy death benefit.

As people grow older, they should consider such a program with their life insurance carriers, so as to stretch their resources to make them last as long as possible.

But, it is not recommended that the ordinary policyholder go into a negotiation with an insurance company without some independent expert help who has no ax to grind.

Your insurance agent or broker may not be your best bet because of commission or relationship issues.

Get help from some one knowledgeable who has nothing to gain or lose because of the advice.



Is LTC A Thing Of The Past?

Wouldn’t you know that the future of long term care insurance as we know it is being seriously called into question this November, the month some marketing genius has labeled “Long Term Care Awareness” month. Ron Lieber of the New York Times recently reported that MetLife would stop underwriting long term care policies for individuals on December 30, while at the same time halting new enrollment of LTC insurance for groups and other plans sponsored by an employer.

According to Mr. Lieber’s article, many other insurance companies, leaders in the LTC insurance filed, are requesting large premium increases or are also seriously contemplating going out of the LTC business. The reason given: Companies were not charging policyholders enough to cover the quickly expanding costs of LTC.

After the blizzard of comment we all have weathered during the recent health care battle in Washington, this should not surprise us. It is obvious that we are living longer (although the affluent seem to be getting a bigger share of longer life than the rest of us). And, although we seem to have made great strides in battling heart, lung, cancer and other killers, we seem not to have made much headway against the major LTC afflictions: Alzheimer’s and dementia, which fill our nursing homes and assisted living facilities.

With demographics (the Baby Boomers) indicating that these afflictions will increase without a major breakthrough, the future looks bleaker and bleaker.
Mr. Lieber’s article points out how far off the mark insurance companies were in pricing these LTC policies. Many factors caused this, the major ones being:

* INTEREST RATES - Everybody knows that rates have hit bottom and are staying there for a while. This hurts insurance company income which relies heavily on invested premiums’ interest income. Low interest income adds to the already heavy load of ever-increasing cost of long term care.

* MORBIDITY – Miscalculating the number of LTC claims the insurer will be carrying on its books and how death and other causes will affect the policy payout.

* PERSISTENCE – This is where more turns out to be less for LTC companies. One would think that having policyholders continue to pay premiums for insurance would be to the benefit of insurers. Not so in LTC where premiums do not cover outlay without normal interest income. In LTC, when a policyholder stops paying the premium, there is no further obligation on the insurer to pay for care, so all monies already paid in, less administrative costs, are pure profit to the company. However, if the policyholder keeps paying premiums until he or she requires LTC benefits, the insurer faces the real prospect of losing money, depending on how long the policyholder draws benefits. So, if a company based its premium on a larger number of policies stopping payment before claim than actually do, the insurer may find its premium schedule too low. Clearly, insurance company underwriters, in their haste to sell product, have grossly miscalculated the risk of this coverage and carriers are now battling to head off future losses.

Is the long term care insurance policy doomed? Will Baby Boomers be left without financial protection when they face the uncertainty of later years? With insurance companies being uncertain about the risks and interest earnings on the bottom, who can tell?

The perfect solution would be for science to unlock the secrets of Alzheimer’s and dementia so they may be done away with, or at least, alleviated to the point where people can function. Without such a breakthrough, the future for this type of insurance looks grim.

Anyone have any ideas?