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Bears maul long-term care market

By Jay MacDonald ·
Friday, March 16, 2012
Posted: 9 am ET

If you find the prospect of buying long-term care insurance daunting, you ought to try selling it these days.

Beginning in 2011, an estimated 77 million baby boomers born between 1946 and 1964 started turning 65 and will continue to do so at a rate of 10,000 per day for the next 18 years. By 2030, 1 in 5 Americans will officially be on the back nine.

With all those boomers rounding the turn, you would think the sale of long-term care insurance, or LTC, policies would be brisk, right?

Wrong. Between the product's built-in aversion problem (who wants to think about a nursing home?), the industry's failure to make its very valid case to the hordes who are likely to need coverage, and the few high-profile companies such as MetLife and Prudential who've bailed out of the market lately, the 50-plus prime-buying-age crowd has been staying away in droves.

Why have some of the bigs tiptoed away from the long-term care market? Simple: They can't make the money work.

As Dan Caplinger notes in a recent Motley Fool column, the insurance companies can't earn enough on the premiums that they in turn invest, primarily in a bearish bond market where interest rates are at historic lows, to build the necessary cash reserves to make LTC profitable.

Which is why LTC is considered overpriced by many today, and why so many are staying away. As Jesse Slome of the American Association for Long-Term Care Insurance put the dilemma to me, "Those who need long-term care insurance can't afford it and those who can afford it don't need it."

Unfortunately. Because, short of hitting the Lotto, long-term care insurance is your best hedge against having to spend down your assets, and likely toss your spouse into poverty, in order to qualify for Medicaid.

There are plenty of things to be spooked about with LTC. The company could raise your rates, though that's been historically rare and is heavily scrutinized at the state level. A rate increase could bust your budget, causing you to abandon the policy in the future. You could drop dead in the shower and never use it, one of those best-case/worst-case scenarios depending on your feelings toward nursing homes.

But this much is rock-solid certain about long-term care insurance: if and when you need assisted living, it's going to be mighty expensive without it.

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March 17, 2012 at 2:55 pm

Although this is a very good opinion piece, it is just opinion. Read another opinion here: LTCi policies haven not been priced out of the market, and those who can afford them are the very people who have assets to protect. Consumers need to be informed and educated before they simply disregard this insurance product. Plus, there are 2 types of policies that can never have rate increases.

March 16, 2012 at 4:47 pm

Now that 40 states have "LTC Partnership programs" you do not have to buy an expensive "unlimited" long-term care insurance policy. You only need to buy an amount of long-term care insurance equal to the amount of assets you want to protect for yourself, your spouse or partner, and/or your heirs.

These government-approved policies are like a traditional long-term care policy with additional consumer protection features.