Over recent years, many people have purchased long term care (LTC) insurance to protect themselves against the rising costs of care in their final years. But lately, policy holders have seen their premiums rise and/or benefits decrease. Two of the largest LTC insurance companies, MetLife and Unum, recently appeared before the Florida insurance commissioner to explain why they asked some of their policy holders to pay double what they paid in premiums the previous year.
Unum explained that when it entered this market in the late 1980s, they determined their prices using the best data available about how future experience would develop. But, over the next decades, they discovered their assumptions were very wrong. For example:
They did not plan on people living so much longer. U.S. life expectancy increased two full years between 2000 and 2014, from age 77 to 79. According to the U.S. Centers for Disease Control and Prevention (CDC), life expectancy is still on the rise.
- They did not plan on such low interest rates. They had planned on investing the premiums they collected at high interest rates to generate healthy returns, but interest rates have been extremely low since the 2008 recession.
- They did not expect people to hold onto their policies. Insurers expected people would forget about their policies and let them lapse, in which case the premiums they had paid would be forfeited and go into the insurance company's pockets to pay other claims. But seniors held onto their policies, causing the insurers to pay more claims than planned.
- They did not expect to have to pay claims so long. Diseases like Alzheimer's and other forms of dementia can last for years, and seniors stayed longer in nursing homes than the insurers had expected.
As a result, some insurers (Allianz, Guardian, MetLife, Prudential and Unum) have stopped offering LTC insurance completely. But they still have to service the people who bought policies and will use them. Insurers plan to reduce the coverage whenever they can, by adjusting the amounts policyholders receive, making them wait longer to receive care and decreasing benefits when they do go into care—and, of course, by increasing premiums. Most of the insurers still have large company-wide surpluses, but seek to make their LTC divisions self-sufficient.
This is not good news for seniors. Those who cannot afford the higher premiums often have to cancel their policies, forfeiting the premiums they have already paid and losing coverage around the time they need it—and then find other ways (bank accounts, home equity) to pay for their care.
The good news is that new types of LTC insurance policies have been developed that do not have the use it or lose if feature of traditional LTC and that also can provide income tax planning benefits. These new policies can also be structured with a senior's estate plan to help keep the senior out of the nursing home, using the LTC funds for care in a less institutional setting.