Just as Michigan baby boomers are starting to realize the devastating costs of long-term care as they deal with their senior parents long-term care issues, they begin to plan for their own long-term care needs. One tool many Michigan baby boomers are looking to to help mitigate the cost of long-term care is long-term care insurance.
Unfortunately, as baby boomers are now beginning to look to long-term care insurance, they are finding that the premiums on many policies are skyrocketing. In addition to the skyrocketing premiums, many individuals looking to get new policies are finding that the underwriting process is denying them the coverage that they desperately need.
Typically, long-term care insurance helps cover or mitigate expenses that your typical health insurance policy will not cover, for example home care costs, assisted living costs, or nursing home costs.
What many insurance companies have found is that they bet wrong on the number of people keeping these policies in effect and the longevity of peoples life span’s with the advent of modern medicine. Due to these actuarial mistakes, many companies (not all) have hiked up their rates to stay solvent. For example, in our office, one of our attorney’s parents had their rates go up 80% in one year!
At the same time, near record lows in interest rates have depressed what the insurance companies earn on the premiums they collect from families.
To show how tough this product is for insurance companies to properly manage, another top five player, Prudential Financial, is getting out of the long-term care insurance market completely. This means that 10 of the top 20 long-term care insurance carriers have bailed on the industry in the past five years.
While this is not necessarily a bad thing in the long-term, because the narrowing of the market has weeded out the insolvent companies and the ones who “bet wrong” so to speak on the product. It is difficult for the Michigan seniors who have had to bear the brunt of the premium increases when often times they are now on a fixed budget. This includes huge rate hikes by some of the major players like John Hancock and Genworth Financial.
John Hancock and Genworth have even asked state regulatory agencies for greater price increases to pass on their bad gambles to the consumers.
So where does this leave Michigan seniors? They face escalating long-term care costs for home care, assisted living and nursing home costs, yet if they want to insure against these costs they look to an industry on shaky ground, subject to price hikes. Add to the fact that many consumers are hesitant to look to long-term care insurance because of the concept of “if you don’t use it, you lose it.”
To address these concerns, many financial institutions are now creating hybrid long-term care insurance products that are coupled with life insurance. For example the “Money Guard” product. Michigan boomers and seniors who can afford to put their savings into the hybrid, which requires a one-time payment, can use the money for long-term care if they ever need it, or they will have a life insurance benefit when they die.
However, these new products might not be all they are cracked up to be because of the high costs and commission paid to the insurance salesmen, but more importantly, there is a feasibility question with these new products. Similar to the gamble on the long-term care insurance, these products are relatively new and there are questions about the sustainability.
USAToday has a good article going in more detail on this topic of long-term care insurance and it’s viability as a planning tool to mitigate long-term care costs.