Obtaining long-term care insurance is a challenge for retirees

Long-term care insurance is a type of insurance that covers the costs associated with extended care services, such as in-home care, nursing home care, assisted living and adult daycare. Unlike traditional health insurance, which focuses on acute medical care, long-term care insurance is designed to cover the costs of ongoing assistance with daily living activities, such as bathing, dressing and eating.

The need for long-term care insurance is becoming increasingly important as the population ages. According to the U.S. Department of Health and Human Services, approximately 70% of individuals over the age of 65 will require some form of long-term care services in their lifetime. The costs of these services can be staggering, with the average cost of a private room in a nursing home exceeding $100,000 in many parts of the country, according to the annual Genworth cost survey.

Without long-term care insurance, individuals may be forced to deplete their savings and assets to pay for care, leaving little or nothing for their heirs. In some cases, individuals may even be forced to rely on Medicaid, a government program that provides long-term care services to low-income individuals, but which may not cover the full cost of care or provide the same level of choice and flexibility as private insurance.

Despite the importance of long-term care insurance, many individuals face significant challenges in obtaining coverage. One of the biggest drawbacks of long-term care insurance is the high cost of premiums. The cost of long-term care insurance has risen significantly in recent years, making it increasingly difficult for many individuals to afford coverage. According to the American Association for Long-Term Care Insurance, the average annual premium for a 55-year-old couple purchasing a policy with a $150 daily benefit and a three-year benefit period is approximately $3,050.

In addition to the high upfront costs, many policyholders may also face significant premium increases over time. Insurance companies have the right to raise premiums on existing policies, and in recent years, many insurers have implemented substantial rate hikes. This can make it challenging for policyholders to maintain their coverage over the long term, particularly if they are on a fixed income.

For example, in 2021, one of the largest long-term care insurers in the United States, announced plans to raise premiums by an average of 58% on some of its older policies. This followed similar rate increases by other major insurers.

The high cost of premiums, combined with the potential for significant rate increases over time, can make long-term care insurance unaffordable or unsustainable for many individuals. This is particularly true for those on fixed incomes or with limited financial resources, who may struggle to keep up with the rising costs of coverage.

Furthermore, even for those who can afford the premiums, there is no guarantee that they will ultimately need or use their long-term care insurance benefits. If a policyholder never requires long-term care services, they may feel that they have wasted their money on premiums over the years.

Given these significant costs and the uncertainty surrounding the need for long-term care, many individuals may choose to self-insure or explore alternative options for financing their long-term care needs. These may include setting aside funds in a dedicated savings account, investing in a hybrid life insurance/long-term care policy or relying on government programs like Medicaid.

Ultimately, the decision to purchase long-term care insurance is a personal one that requires careful consideration of an individual's financial situation, health status and risk tolerance. While the high cost of premiums can be a significant drawback, for some individuals, the peace of mind and financial protection provided by long-term care insurance may be worth the investment.

Several factors can disqualify an individual from obtaining long-term care insurance or make it more difficult to secure coverage. Some common disqualifying factors include:

• Age. Most long-term care insurance policies have an age limit for new applicants, typically around 75-80 years old. This means that older individuals may be ineligible for coverage or may face higher premiums if they do qualify.
• Pre-existing health conditions. Certain health conditions can automatically disqualify an individual from obtaining long-term care insurance. These may include: Alzheimer's disease or other forms of dementia; Parkinson's disease; stroke; metastatic cancer; AIDS or HIV; kidney failure requiring dialysis; severe osteoporosis; multiple sclerosis; muscular dystrophy. Individuals with these conditions may be denied coverage outright or may only be able to obtain coverage with significant limitations or exclusions.
• Functional limitations. Long-term care insurance policies typically require applicants to meet certain functional criteria, such as being able to perform activities of daily living (ADLs) like bathing, dressing and eating independently. Individuals who already require assistance with ADLs may be ineligible for coverage.
• Cognitive impairment. Insurers may also screen for cognitive impairment during the application process, using tools like the Mini-Mental State Exam (MMSE). Individuals with significant cognitive impairment may be disqualified from coverage.
• Family history. Some insurers may consider an applicant's family history when underwriting a long-term care insurance policy. A family history of certain genetic conditions, such as Huntington's disease or early-onset Alzheimer's, may result in higher premiums or denial of coverage.
• Substance abuse. A history of substance abuse, including alcohol or drug abuse, may disqualify an individual from obtaining long-term care insurance or result in higher premiums.
• Risky behaviors. Certain lifestyle factors, such as smoking or engaging in high-risk activities like skydiving or rock climbing, may also impact an individual's ability to obtain long-term care insurance or result in higher premiums.

It is important to note that the specific disqualifying factors and underwriting criteria can vary among insurance companies. Some insurers may be more lenient than others when it comes to certain health conditions or risk factors.

Additionally, even if an individual is not automatically disqualified from coverage, the presence of certain health conditions or risk factors may result in higher premiums, longer waiting periods, or more limited benefits.

To determine eligibility for long-term care insurance, individuals typically need to undergo a comprehensive underwriting process that includes a review of their medical history, a physical exam, and cognitive screening. Working with a knowledgeable financial professional can help individuals navigate the underwriting process and find a policy that meets their specific needs and budget.

Despite the challenges associated with obtaining long-term care insurance, there are several significant benefits to having coverage. One of the primary advantages is asset protection. By covering the costs of long-term care services, insurance can help individuals preserve their savings and assets for their heirs. This can provide peace of mind and financial security for both the policyholder and their family.

Long-term care insurance also provides flexibility in choosing the type of care and the provider. Policyholders can often select from a range of care options, including in-home care, assisted living and nursing home care, and can choose the provider that best meets their needs and preferences. This can be particularly important for individuals who want to maintain their independence and quality of life as they age.

There may also be tax benefits associated with long-term care insurance. Premiums paid for qualified long-term care insurance policies may be tax-deductible as medical expenses, subject to certain limits. This can help offset the cost of premiums and make coverage more affordable for some individuals.

For individuals who are unable to obtain traditional long-term care insurance or who are looking for alternative options, there are several other types of coverage to consider. One option is a hybrid policy, which combines life insurance or an annuity with long-term care benefits. These policies can provide a death benefit if the policyholder does not require long-term care services, making them a more attractive option for some individuals.

Short-term care insurance is another alternative to traditional long-term care insurance. These policies typically cover care for a shorter duration, such as 12 months, and may be more affordable than traditional policies. However, they may not provide the same level of coverage or benefits as a comprehensive long-term care insurance policy.

Government programs, such as Medicaid, can also provide long-term care services to individuals who meet certain income and asset requirements. However, these programs may have limitations on the type and amount of care provided, and may not offer the same level of choice and flexibility as private insurance.

When considering long-term care insurance, it is important to carefully evaluate your personal needs and circumstances. Factors to consider include your age, health status, family history and financial situation. It may also be helpful to seek the advice of a financial professional who can help you assess your options and make an informed decision.

When comparing policies, it is important to look beyond the premium cost and consider factors such as the daily benefit amount, the benefit period and any exclusions or limitations. It is also important to choose a reputable insurer with a strong financial rating and a history of paying claims.

Long-term care insurance can be a valuable tool for managing the costs of extended care services and protecting assets for future generations. However, obtaining coverage can be a challenging process, with high costs and strict qualifying factors that can make it difficult for many individuals to secure a policy. By understanding the pros and cons of long-term care insurance, exploring alternative options and carefully evaluating personal needs and circumstances, individuals can make informed decisions about their coverage and ensure they have the protection they need as they age. Ultimately, the decision to purchase long-term care insurance is a personal one that requires careful consideration and planning, but for many individuals, the peace of mind and financial security provided by coverage can be well worth the investment.