News of MetLife jumping ship on the long-term care insurance market has left people panicking or shrugging their shoulders. Either the fear is growing over how to handle future costs of long-term care, or people are continuing to deny that they’ll ever need it. This week, we’re looking at some of the realities of long-term care insurance from the eyes of a Long Term Care Insurance broker and a Certified Financial Planner.

Don Burkhead, a long-term care insurance broker says that one of the reasons people don’t invest in long-term care insurance is because they think, “This can’t happen to me.”

“Over the last ten years I have seen a steady decline in the number of companies offering LTCI,” he says. “It is a very difficult insurance for companies to profitably underwrite due to the unpredictability and changes in the previous assumptions about future costs, longevity and claim rates.”

Fortunately for me, I listened to Don eight or nine years ago and purchased a long-term care policy for myself from Genworth Insurance. I received my premium renewal notice this week, and for the ninth straight year, I had no increase. Unfortunately, according to Don, that may change next year. Genworth has put in for an 18% increase for some California policyholders with the state insurance commissioner.

Certified Financial Planner Delia Fernandez points out that every type of insurance has rising premiums, unless you buy a fixed-premium life insurance policy. She believes that people are much more sensitive toward LTC premiums rising “because it can be so scary to think about not being able to afford the coverage right when you need it the most.”

Yes, long-term care insurance can be expensive, and premiums are going up. In fact, in the past, claims were unpredictable and insurance companies were grossly undercharging for the value of coverage. Meanwhile, health care costs are rising each year.

Delia suggests you run two scenarios when planning your retirement: one where you live to 100 with no long-term care costs, and the other where you expect to need at least 3 years or more of long term care at about $60,000 per year. If you can still afford to retire with that $180,000 figure looming, you probably don’t need to worry. But if you can’t, Fernandez suggests you consider your alternatives.

Just like any insurance plan, — be it health, life, home, or car insurance – the contrast between the premiums and the actual costs associated is stark. No matter how you slice it, long-term care insurance is likely going to be cheaper than out-of-pocket costs for care.

If you are thinking about LTC insurance, be sure to work with a good agent who understands the market and providers in your area.  Clearly some companies are more committed to the LTC market than others.

James D. Perry

There has been much news in recent days about the need for Long Term Care (LTC) Insurance and the recent reports of large increases in premiums and big insurance companies announcing that they will not sell any new policies.

The subject deserves more time and space than one blog article, so today I will touch on the need. I will follow this blog next week with interviews with Long Term Care Insurance Brokers and Financial Planners discussing the problems the LTC insurance industry is going through.

People are living longer these days, but the human body still continues to break down.  As such, more and more seniors – an estimated 9 million in 2008 – need long-term care.  But do you need long-term care insurance?  It’s a smart way to defray the enormous costs of care, but really, it depends.

Premiums this year cost individuals an annual average of $2,180, but the average rate this year for a private nursing home room is $229 per night, or $83,585 a year, and the average rate for a home healthcare aide is $21 per hour.  The New York Times had an article last week (“Ignore Long-Term Care Planning at Your Peril”) reporting that some major long-term care insurance companies are looking to raise premiums by as much as 40 percent.  And, the longer you wait the more likely rates will rise, and the older you get, more likely you’ll develop a so-called pre-existing condition that affects plan availability and premiums.

There is a misconception that Medicare will cover long-term care costs.  While Medicare may pay for short-term nursing home stays in certain circumstances (for example, while you are convalescing after surgery or undergoing rehabilitation after a qualified hospital stay), it will not pay for long-term care.  And, Medicaid will cover nursing home costs, but only after you’ve expended most of your own finances, and then your access and options in care providers becomes severely limited.

The new Class Act, passed under the health care bill, provides long-term care insurance through the government, but enrollment doesn’t start until 2012 and benefits aren’t likely to exceed $100 a day and then only after you’ve paid premiums for 5 years prior.  However, it may be easier to qualify under the Class Act, as some private plans won’t cover care for certain pre-existing conditions.

One up-side is that there are tax breaks available for qualified long-term care insurance premiums where benefits received under such policies are tax-free.

So, how likely are you to need care to make purchasing an insurance plan worth it?  It largely depends on your family’s health history and your financial situation.  If you’re at risk for a serious illness that requires regular care, and you want to leave something to your children or grandchildren upon your death, it’s probably smart to at least investigate the specifics of a LTC policy.

Next time, update on the Long Term Care Policies and Insurance Companies.

James D. Perry