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Financial Opinion and Insights

Procrastinating on Long-Term Care Insurance?

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

That may be a mistake!

Although I no longer sell insurance, I’m a firm believer in the product, particularly the two big ones most people spend little time thinking about:  Life and Long-Term Care.

 I’m fond of telling 40-somethings they should be buying long-term care for their parents – while they can – to protect their inheritance.  

In our own family, my wife and I have been caring for a parent afflicted with Alzheimer’s for more than seven years, with the help of a full-time live-in caregiver who has become part of our family.   My first impulse was not to disclose our financial ‘hit’ to the world, I realized that it might be important – especially if by doing this even one person takes action to protect his or her family.   When you add-in all costs – and they do go beyond the caregiving itself – they have run close to $70,000 per year – it’s not deductible and not covered by Medicare.   You can do the math. 

If you haven’t done the math, you can rest assured the insurance companies have been doing it – and they underestimated their risk.

Here’s what you need to know:  A recent Bloomberg piece noted that Prudential Financial Inc., the second-biggest U.S. life insurer, said it will halt the sale of individual long-term care policies, joining rivals in retreating from the industry.  Prudential indicated it will continue to offer group long-term care insurance, and existing contracts are guaranteed renewable and won’t change.

Other insurers, including CNO Financial Group Inc. have also been burned: They underestimated the number of claims, the cost of care or the life expectancy of their clients.   MetLife Inc., the No. 1 U.S. life insurer, said in back in 2010 it would also stop sales of new long-term care coverage.

Prudential, MetLife, CNO, and other companies simply “can’t price the product appropriately, and instead they’ve decided to exit the business.”

Deterioration in long-term care business pushed Unum Group into a $425 million fourth-quarter loss and prompted the Chattanooga, Tennessee-based insurer to announce its exit from sales of the products to groups.

The lesson in clear:  If you can get it, you might want to get it now.

Written by Jim Lorenzen, CFP®, AIF®

March 20, 2012 at 8:00 am