The Current State of Long-Term Care Insurance


Long-term care insurance is considered expensive, and is really elective insurance, since there is no certainty it will ever been needed or used. But the cost of health care and long-term care in the United States is only expected to rise annually, making the concept of long-term care insurance more palatable despite the cost. 

Americans are living longer, and the need for long-term care is expected to expand as people live more years.

Insurance companies are rethinking the need to sell long-term care insurance, because it is expensive to them, when policy holders use the insurance coverage to its fullest extent.

The industry is trying to determine what to do in the face of a cost analysis that says long-term care insurance is not a profitable mechanism.

Where does this argument end?

Spectrem’s recent whitepaper, Decisions Regarding Long-Term Care Insurance, details not only the current ownership level of long-term care insurance among wealthy investors, but also the interest level in future ownership. Current ownership ranges between 20 and 30 percent, depending on wealth, while future ownership ranges between 20 and 33 percent, again depending on wealth.

The most telling information from the whitepaper is why investors do not buy long-term care insurance. Among those with a net worth between $100,000 and $1 million, 37 percent say it is too expensive. Among Millionaires with a net worth between $1 million and $5 million, 36 percent say they are saving for long-term care with other savings vehicles, and 52 percent of the Ultra High Net Worth investors with a net worth between $5 million and $25 million also say they have other ways to pay for long-term care.

For more information on the Spectrem whitepaper Decisions Regarding Long-Term Care Insurance, click here.

The insurance industry has taken note. While more than 100 companies offered long-term care insurance 10 years ago, the number is now down to around 20. While premiums are expensive enough to cause some investors to forego purchase, claims themselves are expensive, and with Americans living longer, more claims are being made.

As a result, insurance companies are wary about issuing policies that will end up costing the company more than it makes in premiums.

Insurance companies are also declining long-term care insurance in 20 percent of applications due to existing medical conditions, such as obesity or disability.

According to the American Association for Long-Term Care Insurance, a California-based industry trade group, a typical basic policy provides $164,000 in coverage. Premiums for a 60-year-old couple buying policies for each of them range from a combined $1,685 to $2,813. However, according to the Federal Long Term Care Insurance Program calculator, a 60-year-old single male wanting $200 per day in compensation for five years ($365,000 in benefits) will pay $3,800 per year in premiums.  

There are changes being made in the policies themselves to make them more attractive and easier to pay for in some cases.

Some policies now combine long-term care with regular life insurance. According to industry trade group LIMRA, there were more individual life combination policies sold in 2014 than in 2013, with just under 100,000 such policies purchased last year. Combination life products represented 12 percent of total new premium sales for the individual life insurance market in 2014.

As it works, the policies cover long-term care up to the coverage limit. If those funds are not used in total, the balance is paid out to beneficiaries upon death, similar to a regular life insurance policy.

This would make the long-term care policies more attractive to those who see them as a waste of money if long-term care is never required.

There is also a new annuity-LTC insurance package being offered but only by a handful of companies.

Long-term care policies have also changed in terms of benefits paid. Where in the past it was an all-or-nothing proposal with only one level of benefits paid, consumers today can choose between policies levels on the theory that some protection is better than none.

Yet another complication to the long-term care insurance proposal is that 70 percent of consumers believe the Affordable Care Act will provide health-care benefits in the case of long-term care, which is not true.

According to the American Association for Long-Term Care Insurance, most people start planning for long-term care between the ages of 52 and 64, but advanced age does affect premiums.

According to an AALTCI survey of insurers, 3.2 percent of those buying long-term care insurance in 2012 were between the ages of 35 and 44, 24.7 were between the ages of 45 and 54, while 54 percent were between the ages of 55 and 64. It is possible to buy long-term care insurance after you reach 65, but it is more expensive and you are more likely to get turned down.

Finally, long-term care premiums are tax deductible, up to limits set by both the federal government and state governments based on the age of the taxpayer. If you have enough medical expenses to itemize, you can include your long-term care premiums in the total cost of medical expenses in any one year.