Be Long Term Careful

November 14, 2014

One of the questions I get asked frequently by people who are on track to retire is if they should buy long term care insurance (if they don’t already own it) or if they should cancel it (if they already own it).Lately, that has been a very difficult question to answer.  Companies that offer long term care insurance are raising premiums, sometimes very substantially, and there are no guarantees that they won’t go even higher in the future.  So if you are considering purchasing a LTC policy or cancelling your existing LTC policy, what are some things that you should factor into your decision?

• Understand what drives the pricing for LTC policies.  This article and this one too can help you see the moving parts of a policy and how those parts impact the price.  If you don’t understand any of the moving parts, don’t buy a policy!  Ask enough questions to fully understand exactly what you own or what you’re considering owning.  It is a very important decision so take your time. Over the course of years, it could be more expensive in total than a car or maybe your first house.  Put a commensurate level of effort into the buying decision.
• Shop around! Many banks, brokerage firms and insurance agents have a service available that allows them to shop multiple insurers for rates based on your age, health history and other factors. It’s possible that you may find a better deal with another carrier. It’s also possible that you won’t!  But there’s only one way to find out for sure.  Be careful to get price quotes from multiple insurers so that you can determine if your premiums are reasonable.
• If you are leaving one policy for another because of price, be VERY careful that you aren’t accepting a significantly more restrictive policy (longer elimination periods, greatly lower benefit levels, etc.) for only a slight reduction in price.
• Before purchasing a policy, check out the company’s history of premium increases and their financial stability/health.  Ask the person selling the policy how often and how substantially premiums have increased.  Do some research.  (Let Google be your friend!)  Has the company taken any big charges against earnings because of increased claims paid?  Are there articles about the company being in financial trouble?  Have there been shake-ups at the senior level?   It’s amazing what you can learn about a company just by typing the name into a search engine.

If you are considering cancelling a policy because of the recent rate hikes, do not act hastily.  There is no guarantee that you will be able to replace it with a higher quality, lower cost policy.  And, if you cancel now and want to re-purchase several years from now, you may no longer be insurable at that time.

Getting rid of a LTC policy is a very big decision, so don’t take it lightly.  Remember the reasons you purchased the policy originally.  Take a look at the policy with fresh eyes as if you were out on the open market purchasing a new policy.   If you shop for a new policy, you may find that your existing one (while certainly not ideal because of premium increases) holds up well versus competitors.

If you are considering the purchase of long term care insurance, these steps are crucial to ensure that you are buying a policy that you completely understand and one that fits your needs.  There are a lot of moving parts involved and each part plays a role in not just the pricing of your policy, but the ability of the policy to provide the type of protection that initially interested you in the policy. Finally, if you are still questioning whether to buy it or if you’re asking yourself if you want to keep your existing policy, maybe a conversation with an insurance expert or a financial planner who can help you think through the questions you have could be tremendously beneficial to your long term financial health.