Are consumer concerns about long-term care insurance justified?

From investing in retirement accounts to executing a comprehensive estate plan, many people imagine that taking just a few actions will safeguard their future, such that they can approach their golden years with few concerns. While this is true to a certain degree, there is at least one area in which the efforts of even the most diligent planners have proven remarkably deficient: planning for long-term care.

Reports consistently show that people are neglecting to purchase long-term care insurance, which is designed to help defray some of the major expenses associated with the costs of nursing home care or in-home care. Indeed, this becomes significant when you consider statistics show that three out of every four people who live to 65 will require either type of care.

Why are people so reluctant to consider long-term care insurance?  

Experts indicate that the reluctance on the part of many adults to purchase long-term care insurance can be attributed to fears of potential insurer insolvency, which have only been amplified by recent announcements.

Specifically, John Hancock indicated that it will no longer be selling this type of insurance, while Penn Treaty American Corporation announced that two units will be liquidated next year.

Are there any other factors at play?

Another factor making adults reluctant to purchase this coverage is price. Indeed, the prices of traditional long-term policies have not only increased, but caps on both the amount of monthly payments and the duration of the coverage have also been added to many in recent years.

Still other adults have a difficult time with the notion of simply paying so much upfront for something they may potentially never use.

Are these fears justified?

While the recent turmoil in the insurance industry is cause for concern, experts indicate that the insurance industry is highly regulated, meaning consumers needn’t worry about the ability of an insurer to eventually start making the necessary payments. Furthermore, they point out that even those that have gone belly up — like the two units of Penn treaty — are still legally obligated to make promised payments.

Regarding concerns about cost, they point out that a lifetime of premiums would likely be recouped in just a few months should any sort of long-term care become necessary, and also point to the development of so-called hybrid policies promising long-term care coverage at lower prices.

We’ll examine these hybrid policies in tomorrow’s post.

Source: The New York Times, “Combine long-term care with life insurance? Do the numbers first,” Paul Sullivan, Dec. 9, 2016