Are You Paying Too Much For Long-Term Care?

First things first…Give yourself a round of applause

for making preparations for your future care needs

Source: Flickr; tec_estromberg

According to a Congressional commission on long-term care, 65% of Americans over 45 have completed little or no planning for ongoing living expenses

The needs of the many…

Though few Americans are thoroughly prepared, nearly 70% of people will need some form of long-term care during their retirement years, with 20% needing 5+ years of care

Data source: Congressional Commission on Long-term Care 2013

Long-Term Care Insurance

Annual private and out-of-pocket spending on long-term care needs top $70 billion, yet only 10% of Americans over 50 own a LTC insurance policy

And there’s one HUGE reason for LTCI’s low popularity…

Cost of Coverage

A study of LTC insurance applicants reported that among those who did not purchase a policy, 87% cited high annual premiums as an “important” or “very important” reason for their refusal to buy coverage.

This makes cost of coverage the top deterrent to increasing LTC insurance use among Americans.

Rate Hikes

Over the past few two decades, rates have increased dramatically – making annual premiums for LTCI increasingly less affordable for the average American.

Data source: Congressional Research Service report 2012

3 Big Reasons You’re Paying MoreLong-term care insurance was introduced in the 1980s, but several big changes over the past two decades have sparked higher annual premiums for policyholders:

1. A condensed field of providers2. Low interest rates3. Low policy lapse rates

1. Less competition

Though a once popular offering from insurers, long-term care policies fell out of favor due to their tendency to be unprofitable and difficult to underwrite.

A large field of insurers at the industry’s start has been reduced to a select handful of specialists.

This reduces a consumer’s ability to shop for better rates and for the market to dictate fair pricing. Though the necessary personalization of each policy would often make those market functions difficult.

Keep reason No. 1 in mind: both reasons No. 2 and 3 play back into the reduction of insurers offering LTCI policies.

2. Low interest rates

Since the financial crisis, ever insurance company has had to deal with the low interest rate environment eating away at investment returns – a key to any insurer’s profitability.

With the added pressures of low returns from traditional investments, there is higher risk in offering the highly-specialized and individualized policies needed to prepare for long-term care needs.

3. Low termination rates

Every insurer depends on policyholders terminating a select number of unprofitable contracts within the ordinary course of business. But LTC insurers have found that this product has a lower likelihood of cancellation or lapse.

Since firms in the insurance industry cannot rely on a statistically consistent number of terminations if their product is underperforming, many insurers simply choose not to offer the product.

Ways to Reduce Your CostsSince LTCI is so personalized, there’s no singular approach to reducing you annual premiums. But with some data crunching and planning, you can certainly make sure that the premiums you pay are appropriate for your needs.

Start Early

Statistics prove that when you begin investing early, your portfolio will grow much larger than if you wait a few years. The same principle applies to planning for long-term care needs.

As the average premiums show, by purchasing a LTCI policy in your 60s versus your 70s you’ll not only save over $1,000 annually, but also 20% by the time you’re 80 years old.

Starting earlier also gives you a better chance of passing medical evaluations during the underwriting process – another key factor in LTCI’s low usage across the American population.

Do Your HomeworkThanks to Genworth Financial’s annual review of long-term care costs across the U.S., there’s plenty of data available for consumers to review in preparation for buying a LTCI policy.

The values to the right are the national averages, but Genworth also provides state-by-state data, giving you a great look at the future costs you might face.

By determining the type of care you would want, the going rate in your state, and an estimate of care duration, you’ll have a much better handle on your insurance needs.

Review, revise, revisit

Each LTCI provider will have a number of options for you to choose – from daily maximum benefits to protection against inflation. Review and select these choices carefully, as they will likely raise your premiums.

Also review all notifications from your insurer to make sure that no changes have been made that will substantially alter your policy.

If you have any changes to your medical conditions, be sure to revise your policy (as applicable) to sufficiently cover any increased future needs.

Revisit you policy annually – think of it as an insurance check-up.

Making sure you’re covered for long-term care needs is only part of the retirement puzzle. Here’s another key piece: getting the IRS to work for you. We’ve found a simple way to make sure you’re getting all the social

security benefits you deserve…