The subject of interviews with fourteen financial planners was long term care insurance, and the double bind now facing many seniors, caught between rate increases and benefit reductions. All the planners had experience advising clients who had received rate increase notices from their long-term care insurance companies. (The research was funded by the National Association of Insurance Commissioners’ Center for Insurance Policy and Research.).
As Indiana elder law attorneys helping clients take charge of their finances and protect both themselves and their heirs, we always emphasize that long-term care insurance has an important place. But as we noted in this blog five years ago, the issue of buying long term care insurance is a concern due to “costs surging in price while the benefits are becoming skimpier”.
The recent article in the Journal of Financial Planning referenced above shows that the problems with long term care policies have only gotten worse.
Explanations for the rate increases on long term care policies center around underestimations on the part of insurers of several factors:
- Morbidity (how long policy holders would live and continue to need long term care)
- Lapse rates (the number of policyholders who would drop their coverage voluntarily, leaving a reduced field of “sicker” people needing to collect benefits)
- The interest rate environment (lower interest rates reduce the income insurers earn on their assets)
The rise in costs have led to unwelcome choices being faced by some of our clients, including increases in premiums, reductions in coverage, and some long term care companies going out of business.
One observation from the financial planners was that long term care insurance premiums often increase suddenly and drastically instead of incrementally over time. With most policyholders now retired and on a fixed income, this poses a very real hardship. In addition, if a policyholder reduces the daily benefit or the maximum benefit period to offset a rate increase, this limits their options to respond to future rate increases.
Since 1999, the attorneys at Rebecca W. Geyer & Associates P.C. have helped Indiana families plan for life’s unexpected twists and turns. The narrowing choices facing long term care insurance policyholders often affect our clients’ decisions about gifting to family members as well as decisions on charitable giving. One option we often discuss with clients is dropping the inflation rider on a policy they’ve had for many years. Needless to say, the current age and health condition of each client must be taken into consideration in the course of making decisions about long term care coverage.
We agree with what respected financial planning authority Michael Kitces is quoted as saying, which is that maintaining an insurance policy, even with fewer benefits, gives the insured the benefit of care coordination.
– by Rebecca W. Geyer