When my mother died exactly eleven years ago, she had spent pretty much all of her savings on three plus years of nursing home care. After her death, the first thing I did was invest in long-term care insurance policy wanting to save my children from any financial hardship on my behalf. For just under $1000 a year, I bought a product from Prudential with an unlimited benefit of the daily rate equivalent to hers with an inflation clause.
I was confident I was ahead of the game until slowly and surely Prudential sent notices of rate changes increasing my payments to currently over $1200.00 a year.Two years ago, they stopped offering the policy to others and then this year they sent a notice for an 8.2% increase for both this year and next.
According to the U.S. Department of Health and Human Services, about 70% of people over age 65 will require long-term care services during their lifetime and more than 40% will need care in a nursing home.
Here is the problem. First, companies assumed that as premiums increased and buyers’ disposable income shrank, a certain percentage would drop coverage but that hasn’t been the case with long-standing buyers like me. Second, insurance companies earn revenue by investing premiums but with today’s low interest rates, there is no profit with rising costs and shrinking investment returns.
As a result, Prudential and MetLife have exited long-term care and companies like Genworth that continue to offer products are raising premiums on pre-2003 policies by 50 percent over the next five years and on newer policies by 25 percent. They are also tightening underwriting requirements for new applicants, no longer selling lifetime benefit policies, and reduce spousal discounts from 40 percent to 20 percent.
The new alternative on the market is a combination life insurance and long term care insurance policy. Consumers pay a one-time premium for the plan and if they never take long-term care benefits; their heirs are guaranteed a tax-free death benefit greater than the original premium.
I’m not an insurance advisor and I’m stuck in an obsolete product, but if I had the savings and was considering long-term care, I’d seriously consider this new product. What about you?