Tip-Swapping on Long-Term Care Insurance

Market movements and investment portfolios make for sexier headlines. But when it comes to the most important issues confronting family financial managers today, I'd put long-term care insurance right up near the top. Long-term care coverage can be exorbitant and the premium increases experienced by many policyholders in recent years have been staggering. At the same time, many people have direct personal experience with loved ones for whom long-term care costs gobbled up most of their financial assets.

Morningstar contributor Mark Miller recently shared some tips for long-term care insurance shoppers, and that prompted me to turn to our user base to hear from long-term care shoppers in the trenches. Ultimately, purchasing these policies includes an analysis of trade-offs--a lower inflation increase in exchange for lower premiums, for example--and readers had many thought-provoking tips to share on those types of decisions. To read the complete thread or share your own guidance on the long-term care purchase decision, click here.

'It Is Such a Huge Decision'
Although my question focused on shopping tips for would-be long-term care purchasers, readers also weighed in on the value of the coverage. Some posters said they had run the numbers and were on the fence or had decided that purchasing the coverage wasn't a prudent financial decision.

Among the most negative on the value of long-term care insurance was John2012, who has decided to save for long-term care costs on his own, even if it means depleting his assets at the end of his life. "I've pretty much concluded that the entire industry is a dangerous rip-off," this poster opined. "The challenges are myriad: insurance companies can deny coverage for all manner of preexisting routine health problems, or maybe they'll jack up the premiums to unsustainable levels. Then there are the problems of companies going out of business, getting out of long-term care, relentlessly increasing premiums, limiting coverage, denying claims. Worst of all, you can be faced with fighting an insurance company (the stories are legion) when you're least equipped to handle it. I'm single and without children, so I try to imagine myself on my death-bed fighting a heavily-lawyered insurance behemoth to get what little coverage I can."

Premium hikes for long-term care policyholders have been the result of a bad convergence of low interest rates and high claims payouts, leading RZH123 to question the long-term viability of the industry. "Long term this whole industry looks dicey unless they can increase the insured pool and get better returns on investments."

Indeed, among purchasers and would-be purchasers of long-term care insurance, premium increases were frequently cited as a major problem. Wondering, who has had a long-term care policy for the past 14 years, has seen the premiums skyrocket on his and his wife's policies. "We thought we were being proactive in this decision, that is, purchasing when you are at an age when premiums don't break your bank. My only advice is don think that you get a good deal from any insurance company! They have one goal in mind and that is to make money. After paying in for 14 years we were told that our premiums were increasing by 78%. Yes, 78%! This at a time when we are well into our retirement years and on a fixed income."

JimmyO has had a similar experience. "I purchased a group policy five years ago at age 57 from John Hancock for $194.00 a month. Just yesterday I got a premium rate increase notice; my new premium will be $336.91. I don't think that I would ever buy another long-term care policy. They get you hooked and it is real hard to walk away after you invested so much money."

Those types of tales have deterred Rickydee from purchasing a long-term care policy. "I have read countless stories [of] people who made well-intentioned decisions to acquire a long-term care insurance policy. They paid the premiums faithfully for several years, only to later abandon the policy because of relentless premium increases. I continue to struggle with the decision to buy long-term care insurance, but just can't seem to pull the trigger."

But other owners of long-term care policies say that they went in with their eyes wide open to the possibility of premium increases. JuanTabo wrote, "I accept but am uncomfortable with the risk of substantial premium increases in the future."

And DennyF also noted that people with long-term care policies can downgrade their benefits in an effort to keep their premiums manageable. That's not optimal, but it's better than letting the policy lapse. "Should our premiums skyrocket to the extent we cannot handle the increase," this poster wrote, "our plan is to negotiate benefit trade-offs to keep our premiums affordable, such as offering to increase our elimination periods from 30 to 90 days. However, with our investments, we feel we're prepared for future premium hikes."

MLCole also urged other consumers to be proactive, avoiding companies that are likely to hike premiums in the future. This poster suggested, "Look for companies with stable rate histories--don't always pick the cheapest initial premiums as they may increase substantially in the future. If they do, you may not be able to afford to change or maybe your health has changed."

Even though premium increases were a major source of dissatisfaction among purchasers and would-be purchasers of long-term care insurance, the thread also featured testimonials from individuals whose families had benefited from the coverage, as well as people who were happy to have purchased the insurance for themselves.

Rforno wrote, "I saw first-hand the value of long-term care plans now that I'm taking care of my father, [who has severe dementia.] His [insurance] has covered the vast majority of everything in assisted living for the past three years as his condition worsened, he never understood why he had to write those checks, but I'm extremely thankful I kept making him do it. Ergo last year when I had the opportunity to pick up a long-term plan through a one-time open season when my university employer tweaked its group policy slightly, I pounced especially when the number of firms offering individual long-term care plans has shrinking in recent years."

In a similar vein, Flyingfingers has been grateful that she and her spouse purchased the coverage when they were in their mid-50s; she has since benefited from having the insurance to cover short-term care costs related to a broken hip. "It is such a huge decision, but one we are glad we made. I didn't know that long-term care would be something that could be used in the short term and not just when I am totally disabled."

'If I Had $5 Million I'd Forget It'
Readers also discussed the optimal profile for purchasing long-term care insurance, with many agreeing on the value of not tarrying on the decision-making.

Being in good health is a major factor in being able to obtain the coverage, prompting Tomp6325 to urge, "Don't delay your purchase. The most minor health issue, even if the health issue belonged not to you but your parents, can be a reason for a policy denial. A person with a family history of Alzheimer's or diabetes will raise red flags for the long-term care providers."

Respondents also discussed the financial profile that makes sense for a long-term care purchase. DennyF advised, "Obviously, if your assets are too little for self-insurance, but too great for a state Medicaid solution, long-term care insurance may be the only feasible option other than rolling the dice. My wife and I did not want to burden our sons with our long-term care. So, prior to my 60th birthday and her 58th, we purchased long-term care insurance."

NormanR agreed that while the very wealthy can cover long-term care costs out of pocket, many others cannot. "We are in that wealth group where long-term care makes sense. If I had $5 million I'd forget it." ​

'Lots of Options That Affect Both Coverage and Cost'
Posters also shared much valuable wisdom about what to look for when shopping for a policy. Many cited the value of doing your homework and seeking quotes from multiple providers. For a helpful overview of what to look for when evaluating long-term care plans, Juris2 the following resource, "A Shopper's Guide to Long-Term Care Insurance," produced by the National Association of Insurance Commissioners.

Other respondents concurred that long-term care insurance can be a dizzying maze of unfamiliar terms and trade-offs, which involves an assessment of the riders and their costs, as well as an evaluation of the probability of various scenarios.

Poster JuanTabo summed up the complexity of the analysis, noting, "It's a major purchase of a complex insurance product with lots of options that affect both coverage and cost."

Juris2, who recently purchased a plan, cited some of the key variables that long-term care shoppers need to assess. "The agent was very forthcoming about costs under a variety of options. We got at least 20 different optional plans, with different combinations of daily coverage amounts, number of days, length of elimination period, and cost-of-living adjustment rates."

Among the universally agreed-upon features for many long-term care purchasers is an inflation adjustment. Randall3f opined, "The most important aspect of any policy: Inflation adjustment each year."

But at least a few posters noted that paying extra for a 5% inflation rider might not be worth it. MLCole advised, "You will pay a lot more premium for a 5% inflation rider. A 3% rider can be a better option and is often much cheaper."

Several posters urged would-be long-term care buyers to see flexibility in benefits, including in-home care and adult day care in addition to long-term care provided strictly in a nursing home setting. Chief K wrote, "Personally I would not have signed on for any policy that did not offer 'in-home-care' as an option."

WIZARDOFWESTON agreed, writing, "Keep in mind that it is more likely that you will need in-home care than a nursing home, which is much more costly."

And while coverage for unlimited long-term care costs might seem intuitively appealing, RZH123 noted that paying for partial coverage is more affordable and can provide valuable peace of mind. "Our policy covers about one half to two thirds of nursing home costs and allows for in home care as alternative. For us, getting 100% coverage was inordinately expensive."

Limiting the term of the coverage can also result in substantial cost savings. WIZARDOFWESTON urged, "Limit term to no more than three years (hardly anyone lasts longer than that in a nursing home)." (This article includes some statistics about long-term care.)

Also picking up on statistics about long-term care, TaylorZR offered this tip. "For many who end up needing to eventually file a claim (and as most claims last 18 months to three years), a $250 per day three-year plan may be much more valuable than a $150 five-year plan. The pools of money are identical, and the premium is not all that different, but one's ability to get to their benefits at time of greatest need becomes readily available."

Respondents also discussed the role of elimination periods--the amount of time the insured person needs to cover long-term care costs out of pocket before the insurance kicks in. As with deductibles for property insurance, a longer elimination period can result in a lower premium, but it could also result in a financial strain. The inability to shoulder costs during the elimination period could also make it difficult to stay current on long-term care insurance premiums, wrote Chief K. "If you feel that you cannot afford to pay-your-own costs for long-term care for the first 60-90 days from other assets, that could mean that an unplanned expense would mean you'd be unable to continue to pay the premiums and would lose your coverage."

'Shared Care Is an Important Benefit'
Posters were also generally sanguine about shared coverage for couples versus purchasing separate policies for each spouse. JuanTabo wrote, "Both agents recommended and we selected shared coverage, whereby either of us can use the other's coverage if our own is exhausted." 

MLCole agreed: "Shared care is an important benefit--if you have a six-year pool (whatever pool you select), if one spouse uses four years, the other would get two. If one uses five years, the other would get one year."

Such policies can result in cost savings, advised NormanR. "I suggest you look at 'husband and wife' policies. We did that and were offered a substantial reduction in the fees."

Buying long-term care insurance as part of a group plan, such as one offered by an employer, can also result in cost savings, noted Chief K. "Group plans are almost certainly going to appear to be a better buy than an individual plan." Buying insurance through a group plan has a salutary benefit of being easier to research. "[Group plans] have the advantage of an existing clientele--try to find several people who are using the plan and ask them about their experience."

'One of the Least-Bad Choices'
Respondents disagreed about the value of products that combine long-term care insurance with life insurance. Weiwentg considers such policies "one of the least-bad choices" in the realm of long-term care. 

Railroader has also been satisfied with the decision to purchase a hybrid policy. "My wife and I purchased a combination long-term care insurance and life insurance policy from  Hartford Financial Services Group (HIG)," this poster wrote. "The reason for that is it was less expensive than two separate policies and there is no guarantee that we will ever use the long-term care portion. How it works is that whatever we don't use for long-term care will be available for the beneficiaries of our policies."

ButJuris2 doesn't think life insurance makes sense for people who are no longer working. "I don't want whole a whole life policy for any reason, whether purchased separately or bundled with long-term care insurance. I regard long-term care insurance as a form of 'estate insurance.' But while I am buying that insurance, I am also letting my term life insurance lapse when I retire. It did the job I asked of it: provide a backstop for my family in case I (the sole earner) could no longer provide for them. Now that I have achieved what I consider to be a sufficient accumulation of wealth to support my retirement, I can better put the money that I've been putting into term life insurance to use by spending it on stronger long-term care insurance policies for me and my wife--in effect helping to assure that our joint retirement accumulation won't be depleted by my or her late-in-life disability or incapacitation."

See More Articles by Christine Benz