Will Long-Term Care Insurance be around for the Long Term?
Investors of all ages and wealth levels give some thought to the later stages of their lives, and have concern about their health care at that time. Their approach to handling the cost related to those concerns differs, and for a surprising few, that approach includes long-term care insurance.
It is estimated that there are eight million Americans receiving long-term care from nursing homes, home health agencies, hospices or residential care communities. Although those services vary in cost, none of them are inexpensive. According to the Family Care Alliance, Americans spent $219 billion paying for those services in 2012.
Health care providers believe that more than two-thirds of individuals living to 65 and older will require some form of long-term care. Nursing home care runs to about $91,000 per year on average in the United States.
Long-term care insurance is designed to cover the cost of such care, but is not widely utilized. It is also not widely promoted by financial advisors.
Spectrem’s white paper Decisions Regarding Long-Term Care Insurance reports that LTC ownership tops out at 30 percent depending on the wealth of the investor. Millionaires, those with a net worth between $1 million and $5 million, have the highest percentage of LTC owners at 30 percent, while only 26 percent of Ultra High Net Worth investors (with a net worth between $5 million and $25 million) own LTC insurance and only 22 percent of Mass Affluent investors (with a net worth between $100,000 and $1 million) do so.
These statistics make sense from a financial viewpoint. Millionaires can afford LTC insurance, while Mass Affluent investors can see it as a significant expense, with estimates of average cost between $1,500 to $3,000 a year. The UHNW investor, the wealthiest segment, often has the necessary funds in other investment vehicles and do not require the additional purchase of LTC insurance.
More than one-third of Mass Affluent investors said LTC policies were too expensive. More than half of UHNW investors said they were saving for long-term care needs through other savings vehicles.
But there were investors in the Spectrem studies who reported an interest in purchasing LTC insurance. Approximately one-third of Mass Affluent and Millionaire investors not currently invested in LTC insurance said they had at least some interest in making the investment in the future.
However, less than 30 percent of investors find out about LTC insurance from their primary advisor. The highest percentage (approximately 38 percent overall) get their LTC insurance information from insurance agents, while 15 percent get information from friends and family.
Increases in life expectancy has affected the long-term care insurance market. Costs are rising as people live longer, both for the consumer and for the insurance company. While John Hancock and Genworth Life are the two companies with the highest number of LTC insurance clients, many insurance providers have gotten out of the LTC game.