Wealth Management Blog

Posts published in May 2014

Long Term Care: Challenges & Opportunities

By JJ Burns

May 22, 2014

Long-term care insurance policies are a valuable resource for many people. They provide funds to pay for home care and nursing home expenses for an extended period of time.  As our baby boomer clients and their parents age, we have witnessed how the benefits have protected the assets and lifestyle of families.

In the last few years, insurance companies have been asking regulators to approve premium increases for older-issued (8 to 10 year old) policies.  Simply stated, the insurance companies are not collecting enough in premiums to cover their expected future liabilities to provide care.  As a result, an increasing number of policyholders are receiving notifications of significant premium rate increases.

The 3 main factors behind these premium increases:

  1. Insurers overestimated the number of policyholders that would drop their coverage
  2. Costs of home health care and nursing home care has significantly increased in recent years
  3. The low interest rate environment has reduced insurers’ ability to earn income on investments backing their policies

Your Options When Faced With A Premium Increase

Look for new coverage.  Your first reaction may be a desire to drop your coverage and try and find a new carrier.   However, often times it is unlikely that you will be able to purchase a new policy at a better rate, especially if you are much older or your health has deteriorated.  Additionally, new policies being issued today are being done so at much higher premium rates than they were even 5 years ago.

Change your coverage.  If you do not want to pay the increased premium cost, you may want to consider modifying your coverage by lowering your benefits, decreasing your inflation protection, or shortening the years of coverage.  It is important to note however, that once you reduce your benefits, you cannot re-establish the original benefit.

Pay the increase.  Depending on the size of premium increase and your ability to absorb the cost, it may be advisable to pay the new higher premium because the coverage is quite valuable.  This becomes an individual decision for each policy holder based upon current assets they have saved, income available to pay the additional cost and their current health.

Drop your coverage:  If your wealth has grown beyond the need for coverage, it may be time to eliminate the insurance.  It's important to determine if your assets can support a home or nursing care expense. 

Insuring Your Future

Planning for long term care involves more than just insurance.  I was recently interviewed for a segment of On The Money with Sharon Epperson of CNBC to discuss long term care insurance and whether the price is worth the protection.  Whether you’re faced with an increase in premium or evaluating the benefits and costs of long term care insurance for the first time, it is important to start by looking at your overall financial plan.  Once you understand all of the wealth management gaps in your life, you can then do a thorough analysis and make an informed decision.  How your assets are owned is a key component to planning and should always be part of the process.  The last thing you want to do is add an unnecessary expense without a thoughtful plan.

If you have any questions about the gaps in your wealth management plan, contact our office at 631-390-0500.