Is it long term care worth it?
We all know that the long term care expenses are too expensive to fund out of pocket; many have had to drain their savings to cover just a portion of the care that they need. On top of that, family members have been pushed to carry the burden of providing care. We have all heard that long term care insurance policies can solve that, but how much of these claims are true? Are these plans still worth the purchase?
Identifying the Risks
Success in planning for long term care is only possible if we have spend ample time understanding the risks. Let’s identify each and see how these can affect our lives:
Risk 1: Premium Rate Hikes
If you purchased a policy eight to fifteen years ago, you have experienced rate increases in the recent years. We’re sure this has caused you to worry or even forced you to resort to other methods just to avoid those price hikes.
However, individuals looking to long term care insurance policies must understand that companies cannot just enforce premiums hikes on a whim. They need to go through an intricate process before they can implement increases, and state insurance regulators typically approve lower rate increases than the amount requested by companies.
More importantly, policy prices are now priced more accurately. Because of the drawbacks that happened in the past, insurance companies now have more information about the actual costs of claims, and they have made the right price accommodations.
Risk 2: Not Enough Coverage
Typically, insurance companies offer benefit periods of two, three, ten years, and unlimited coverage periods. While the latter may seem the most appealing, it is the most expensive. This can lead to financial issues down the line.
“How long will I need long term care?” This is perhaps one of the most nerve-wracking decisions people have when it comes to purchasing coverage. No one wants to be spending too much on a ten-year policy only to end up needing two years worth of care. However, no one wants to purchase only two years worth of care but end up needing coverage for five.
Risk 3: Insurance Companies Could Fold
Like any other industry, some companies just do not last as long as they intended. Over the years, we have witnessed a number of long term care insurance companies going out of business. This leaves many policyholders worrying about their insurance policies.
Bear in mind, however, that policies do not go down with the company. Instead, another insurance carrier buys out or absorbs the company along with its existing policies. Moreover, states have insurance guaranty associations that protect you (the consumer). This means that these organizations act as safety nets for companies that cannot fulfill claims by offering financial assistance, facilitating the sale to other insurance companies, or providing the opportunity for you to cash in your plans.
Tips, Tricks, and Strategies
Now that we have identified the risks and challenges, it is time we find the solutions.
Strategy 1: Reduce the Costs of Your Premiums Effectively
Yes, rate hikes for new policies are now less likely. However, you must still have a good understanding of their options should an increase still happen. Listed below are the options that would help rein in the costs:
Increase elimination period—this is the time frame in which we are supposed to pay for the care expenses before the insurance policy kicks in. If we increase the period from, say, 30 days to 90 days, we reduce the cost of the policy.
Decrease inflation protection—this is an insurance feature that helps our funds keep up with the inflation.
Decrease the daily benefit amount—this refers to the maximum amount the policy will pay on a daily basis.
Decrease benefit period—this is the time frame in which the policy will cover the costs of long term care services.
Bear in mind making these substantial changes can have significant effects on your coverage. It would be better to consult with an insurance agent before adjusting any of these features.
Strategy 2: Consult the Right People
Industry professionals and our family members will play a key role in identifying how much care we might need. We can look into family health history and see if there are any health conditions that might be in our future. Moreover, we can also use this as basis to see the life spans of our family members. This does not guarantee that we will live just as long or as a short, but it is a great bit of information to have.
We must also take the time to examine statistics and data available online. For example, studies point out that men typically need care for 2.2 years while women often require 3.7 years. On top of that, more than 70% of nursing home residents are women, and the average age at admission is 80 years old. These can help narrow the options when choosing coverage.
Strategy 3: Examine the Stability of the Company
Listed below are factors and considerations that can help you determine how the company is doing in the market or how long it will stay:
Financial standing – the company’s ratings and stability can point out its financial capabilities. Fitch Ratings, Moody’s Investor’s Service, and Standard & Poor’s are three companies that provide ratings to insurance companies. These make great references when deciding on an insurance carrier.
Longevity in the industry – How long has the company been in the business? Although long term care insurance policies are relatively new, some companies have been in the business since the product started. The fact that these companies have survived the various challenges that the industry has faced is definitely an advantage.
Consumer reviews – Research reviews and opinions of the consumers as this can prove a great insight on how the company is doing.
Over the years, these policies have received mixed reviews. Some have expressed that these are just too costly to keep up with while others claim that they are nothing but satisfied with the claims they have received. At the end of the day, people simply want coverage that provides security and independence. We have all worried about money all our lives; we should not still be doing so during the twilight years. The key to this is right under our noses: proper planning and research. No person should struggle in paying for long term care, especially since they are only doing so to improve their quality of life during the twilight years.
What kind of long term care insurance policy have you purchased? Do you think it is worth it? Why or why not? Share your experience on our community forum! Click here for a FREE eBook from The Association for Long Term Care Planning.
Written by: Samantha Stein from the Association for Long Term Care Planning. ALTCP provides free long term care information, resources and expert planning advice for seniors and adults. Our mission is to raise awareness and promote self-education on the need to plan for long term care.