Purchasing a long term care insurance policy is a necessity for many baby boomers at this point. However, the one question that remains in their minds: “What do we do about the substantial risks which come with securing this type of coverage?”
We all know that the long term care expenses are too expensive to fund out of pocket; many have had to drain their savings to cover just a portion of the care that they need. On top of that, family members have been pushed to carry the burden of providing care. We have all heard that long term care insurance policies can solve that, but how much of these claims are true? Are these plans still worth the purchase?
Identifying the Risks
Success in planning for long term care is only possible if we have spent ample time understanding the risks. Let’s identify each and see how these can affect our lives:
Risk 1: Premium Rate Hikes
Baby boomers who purchased policies eight to fifteen years ago have been experiencing rate increases in the recent years. This causes worry among those looking to purchase coverage, and often resort to other methods just to avoid these price hikes. However, it is important to understand why these are happening before anyone decides.
When these insurance policies were sold decades ago, the premiums were really underpriced. The volume of claims made by policyholders was not expected by insurance companies who sold policies back then. This resulted in a higher cost of claims that the companies were not prepared for. Moreover, the 2008 recession drove a significant blow to the industry. The premiums paid by policyholders are invested by the companies. Because of the low-interest rates back then, the results were lackluster.
However, individuals looking to long term care insurance policies must understand that companies cannot just enforce premiums hikes on a whim. They need to go through an intricate process before they can implement increases, and state insurance regulators typically approve lower rate increases than the amount requested by companies.
More importantly, policy prices are now priced more accurately. Because of the drawbacks that happened in the past, insurance companies now have more information about the actual costs of claims, and they have made the right price accommodations.
Risk 2: Not Enough Coverage
Typically, insurance companies offer benefit periods of two years, three years, four years, five years, ten years, and unlimited coverage periods. While the latter may seem the most appealing, it is the most expensive of the choices. This can lead to financial issues down the line.
“How long will I need long term care?” This is perhaps one of the most nerve-wracking decisions baby boomers have when it comes to purchasing coverage. No one wants to be spending too much on a ten-year policy only to end up needing two years worth of care. However, no one also wants to purchase only 2-years worth of care but end up needing coverage for five.
Risk 3: Insurance Companies Could Fold
Like any other industry, some companies just do not last as long as they intended. Over the years, we have witnessed a number of long term care insurance companies going out of business. This leaves many policyholders worrying about their insurance policies.
Bear in mind, however, that policies do not go down with the company. Instead, another insurance carrier buys out or absorbs the company along with its existing policies. Moreover, states have insurance guaranty associations which protect the consumers. This means that these organizations act as safety nets for companies that cannot fulfill claims by offering financial assistance, facilitating the sale to other insurance companies, or providing the opportunity for policyholders to cash in their plans.
Tips, Tricks, and Strategies
Now that we have identified the risks and challenges, it is time we find the solutions. In a recent post by ALTCP.org, experts talked about long term care planning strategies and how baby boomers can take control of their future. Let’s continue the discussion by sharing more ways we and our peers can prepare for care.
Strategy 1: Research and Reduce the Costs of Your Premiums Effectively
Yes, rate hikes for new policies are now less likely. However, baby boomers must still have a good understanding of their options should an increase still happen. Listed below are the options that would help rein in the costs:
- Increase elimination period—this is the timeframe in which we are supposed to pay for the care expenses before the insurance policy kicks in. If we increase the period from, say, 30 days to 90 days, we reduce the cost of the policy.
- Decrease inflation protection—this is an insurance feature that helps our funds keep up with the inflation.
- Decrease the daily benefit amount—this refers to the maximum amount the policy will pay on a daily basis.
- Decrease benefit period—this is the timeframe in which the policy will cover the costs of long term care services.
Bear in mind making these substantial changes can have significant effects on your coverage. It would be better to consult with an insurance agent before adjusting any of these features. If you have questions regarding this, please feel free to contact ALTCP.org through the quotes page to talk directly to an insurance agent.
Strategy 2: Consult the Right People
Industry professionals and our family members will play a key role in identifying how much care we might need. We can look into family health history and see if there are any health conditions that might be in our future. Moreover, we can also use this as basis to see the life spans of our family members. This does not guarantee that we will live just as long or as a short, but it is a great bit of information to have.
Moreover, we must take the time to examine statistics and data available online. For example, studies point out that men typically need care for 2.2 years while women often require 3.7 years. On top of that, more than 70% of nursing home residents are women, and the average age at admission is 80 years old. These can help narrow the options when choosing coverage.
Strategy 3: Use Reliable Tools in Examine the Stability of the Company
Listed below are factors and considerations that can help you determine how the company is doing in the market or how long it will stay:
- Financial standing – the company’s ratings and stability can point out its financial capabilities. Fitch Ratings, Moody’s Investor’s Service, and Standard & Poor’s are three companies that provide ratings to insurance companies. These make great references when deciding on an insurance carrier.
- Longevity in the industry – How long has the company been in the business? Although long term care insurance policies are relatively new, some companies have been in the business since the product started. The fact that these companies have survived the various challenges that the industry faced is definitely an advantage.
- Consumer reviews – Research reviews and opinions of the consumers as this can prove a great insight on how the company is doing.
Why Do People Buy These Insurance Policies?
Perhaps, the complete question on everyone’s minds is this: Why do people buy these insurance policies if there are other options available? Over the years, we have seen various programs and organizations extend a hand to people in need of long term care. At this point, the choices that people have are quite overwhelming.
However, securing funds is not just as simple as visiting their offices and walking out with coverage. These require long intricate processes and a great deal of research because these options cater to specific types of needs. Medicaid, for example, is only beneficial to impoverished individuals no matter what many people seem to believe. Life insurance policies with long term care riders may seem like the best of both worlds, but various experts have stressed that a policy trying to cover two different aspects typically end up not covering either very well.
This brings us to long term care insurance policies. Over the years, these policies have received mixed reviews. Some have expressed that these are just too costly to keep up with while others claim that they are nothing but satisfied with the claims they have received. At the end of the day, people simply want coverage that provides security and independence. We have all worried about money all our lives; we should not still be doing so during the twilight years. The key to this is right under our noses: proper planning and research.
Purchasing Long Term Care Policies Correctly
The industry is not perfect, but what is? However, it is important to note that it has improved greatly over the years. At the end of the day, remember that these policies aim to provide a helping hand to baby boomers and retirees in funding the care that they deserve. No person should struggle in paying for long term care, especially since they are only doing so to improve their quality of life during the twilight years.
This is why we at ALTCP.org strongly encourage everyone to plan for long term care early and effectively. The reality is that 52% of individuals turning 65 today will develop a serious health condition that would require long term care services and supports. These cost substantial amounts of money that could drain the savings of the majority—this should never be the case.
Take the first step of securing coverage by requesting a long term care insurance quote now. This will help you start a conversation with an insurance specialist who can help you navigate the world of long term care. Remember that we are all one diagnosis or one fall way from needing care services. It is better to be prepared today.