Long-term care insurance hits a crisis point
A Jan. 18 article in the Wall Street Journal says premiums for long-term care insurance are going up so fast that some policy holders can’t afford the premiums. Some people are even going back to work to afford the payments. Others are walking away from policies.
The crux of the crisis is bad actuarial assumptions, lower than expected policy lapses, the popularity of long-term care facilities, people living longer and low interest rates, the Journal reports. The bad actuarial decisions have left insurers scrambling to have enough money to cover claims. Premiums can go up 50 to 150 percent.
In many types of insurance, many policy holders never get a payout, which helps spread risk. However, most people that get long-term care insurance eventually need the coverage, which means the risk isn’t spread as much, said Melinda Kibler, a certified financial planner with Palisades Hudson Financial Group in Fort Lauderdale.
Since the bulk of buyers will eventually collect, the long-term care insurers have to raise premiums, Kibler said in an email. This, in turn, will cause the healthier portion of the population to opt out, leaving a pool of less-healthy participants who all believe they will need to collect on this insurance sooner than later.
Wealthy people don’t need the policies because they can afford care, while those with minimal assets can get expenses paid by Medicaid after they burn through their cash, Kibler said. The ones stuck are somewhere in the middle.
“Instead of paying into a policy with rising premiums that may empty your retirement savings, it is better to plan for long-term care by saving and investing,” Kibler said. She runs cash flow projections for clients to help figure things out.
Another factor to consider is whether you want to leave money to your heirs. Life insurance might be a better option than a long-term care policy when it comes to doing so since the policy costs are more predictable, Kibler said.
Those who want to transfer assets to their children to qualify for Medicaid coverage need to be wary. If you apply for Medicaid within 60 months of transferring your assets, you’ll pay a prorated penalty based on the average monthly cost of care in your area.
Kibler also recommends getting a lawyer who specializes in estate planning in elder care if you want to set up a trust to transfer assets. Without the right trust, your son or daughter could lose a lot of the assets if there is a divorce.