Long Term Care Insurance

Long Term Care insurance is a type of insurance most of us don’t want to think about.  These policies help pay for the cost of nursing homes, assisted living, or home care if an individual is incapable of performing certain basic human necessities.  The Wall Street Journal recently wrote an article about how these policies have recently become less popular as policy costs increase and a number of insurers pull out of the market.  According to the American Association of Long-Term Care Insurance, over the past year policy holders have seen policy costs increases of up to 17% .  Insurance companies site decreasing returns on their investments due to the current low interest rate environment as well as ever increasing claims costs.

In order to combat these significant cost increases, some policy holders chose to reduce their benefits.  Where a typical policy would pay benefits of $150 per day, some policy holders have opted to reduce their daily benefit to $100 per day to offset cost increases.  With nursing home costs approaching up $80,000 per year, this level of coverage is insufficient to cover the total cost of care.  Some experts however suggest that this level of coverage is a good middle ground as a hedge against ever rising care costs.

The article also sites alternatives to buying traditional long term care coverage.  There are now hybrid products that combine long term care coverage with traditional life insurance.  Some of these polices allow for lump sums to be paid up front and used for long term care.  If the policy is not used for long term care during the policy owner’s lifetime, it is paid to a designated beneficiaries as a life insurance benefit.  Another alternative is to self insure.  However this approach requires a retirement savings of at least $2 million dollars, a saving nest egg few of us can afford to accumulate.

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