Long Term Care
Successful health reform must not just make health insurance affordable, affordable health insurance has to make health care affordable - Elizabeth Edwards
image by: healthinsurance.org
The platonic guardians of retirement advise us to buy long-term care insurance. Protect your family from the devastating costs of nursing homes, they say. You are supposed to start chipping in premiums at a young age like 55, building up equity that covers you much later in life. My advice: Maybe don’t.
If you are risk-averse, you will stay away from these policies. You will also avoid shares in insurers that sell them. The economics of old-age insurance are sufficiently poisonous to injure both parties to the transaction. Public companies that are or have been in the business of selling long-term care insurance include Genworth (GNW, 10); Loews (L,44), via its 89%-owned subsidiary CNA Financial; Manulife Financial(MFC, 15); MetLife (MET, 38) and Prudential Financial (PRU, 59).
From the buyer’s perspective, LTC insurance has three defects, at least when you compare it to the conspicuous alternative, a longevity annuity. The latter is an investment that pays out a fixed monthly sum beginning when the buyer reaches some advanced age, like 80.
1. The LTC policy covers only LTC. How do you know that it’s a nursing home bill you will be paying? Maybe what you’ll need is cash to cover your rent and your food. With the annuity, it’s none of the insurer’s business how you spend the money.
2. The LTC policy permits the seller to change the terms after you have put money in. LTC policyholders have confronted surprise rate hikes on the order of 45% to 85%. They then have the unpleasant choice of either walking away from the premiums they have sunk so far or else throwing good money after bad.
Imagine buying a Lexus for $5,000 down plus $500 a month under a contract that allows the dealer to raise the monthly payment if he wants to. Six months in, it goes to $800, and you have a free choice between paying up or handing in the car and losing your down payment. That would be a ridiculous contract to sign. LTC buyers sign contracts like that.
3. To collect on an LTC policy, your family may have to put up a fight.
If LTC policies are a raw deal for the buyers, you might think, they must be lucrative for the sellers. Alas, no. Many insurers have stopped selling new policies, even as they file desperate petitions with state regulators for permission to jack up rates on old policies.
Yes, both sides of a deal can come away losers. It’s a bit murky just when a policyholder is sufficiently disabled to be entitled to collect. If a benefit worth $50,000 is at stake, it makes sense for the insurer to spend $45,000 on medical exams and claims adjusters fighting the claim and for the applicant to spend $45,000 pursuing it.
With a longevity policy, the only thing you have to prove in order to get your monthly sum is that you are still drawing a breath... Source: Dodge the Long-Term Care Insurance Mess, Forbes, March 29, 2013