According to the U.S. Department of Health and Human Services, there are 42 million Americans ages 55-64.  This would indicate that there is an emerging market for traditional long-term care (LTC) insurance. However, in 2000, 125 insurance firms offered these policies. Now there are fewer than 12. Traditional LTC insurance plans have been decreasing rapidly in the last 10 years.  AARP, Genworth, and John Hancock all have discontinued their traditional policies.

Why is this happening?

With the Baby Boomer generation fast approaching retirement, one would think the opposite would be happening. There are a few factors that have contributed to this. Medical technology has kept people alive longer than actuaries expected. This increased the risk exposure and caused carriers to bear significant losses. As a result, policies with higher premiums and fewer benefits flooded the industry. And because those policies were vastly different, consumers left the marketplace. This led some insurance firms to stop selling with independent brokers or completely abandon the traditional market.

Is this a supply problem or demand problem?

Most insurance companies did not leave the LTC industry entirely. They still offer hybrid products that combine life insurance or annuities with those benefits. So, insurers did not quit the race. They simply are driving different cars.

Are these options as good?

Both hybrid policies have positives and negatives. Both policies do not qualify for partnership status, a provision in many traditional policies that can protect some or all your assets from Medicaid spend-down requirements.  Annuities require up-front premium payment (usually a six-figure sum) to ensure proper coverage. However, they can provide a guaranteed income later in retirement along with the LTC benefit. Also, if the annuities are not used (called annuitization), some or all of the premiums can be given to a beneficiary upon death. Life insurance/LTC policies might not be as robust as traditional policies with the premium being equal. What they can offer is a death benefit in most cases and pay for care. Both hybrid insurance products offer LTC coverage for those with preexisting medical conditions not covered by traditional policies.

What does this mean?

Consumers need to learn how important LTC insurance is. What was once a staple in middle-class retirement planning has become an afterthought. Claims are rising. That means more people need long term care. According to AARP, 52% of Americans 65 years old will need some type of home healthcare.  And only 10% have some form of insurance coverage to pay for it. This means 40% of the population will need to pay out of pocket for it. To self-insure (pay for care without insurance), people should have a net worth of at least 1.5 million of which no more than 50% is home equity. Attempting that with anything less could leave you and your family broke.

Thankfully, premiums for traditional and hybrid policies have stabilized in the past few years. The market is extremely favorable for consumers now. The answers to your LTC questions are here. 

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