If you've ever wondered how you might one day afford home health care or a nursing home, recent word from the long-term care insurance front was hardly encouraging: MetLife, the nation's largest life insurance company, is pulling out of the LTC game at year's end. The company will continue to honor all existing contracts however.
As MetLife CEO Robert Henrikson admitted in a press conference, long-term care "does not allow you to have a necessary return on capital and still be competitively priced." The Spanish translation: "Mucho trabajo para poco dinero." Too much work (and risk) for too little money.
Consider the numbers: The cost of assisted living increased at an annual rate of 6.7 percent and a private room in a nursing home jumped 4.5 percent annually over the past five years, according to LTC underwriter Genworth. As premiums naturally escalated, the number of new individual policies plummeted 32 percent from 2005 to 2009, according to LIMRA.
Clearly, an increasing number of Americans now also consider long-term care insurance a sucker's bet as well.
It's deja vu all over again for Judith Hasenauer, JD, CLU, a Pompano, Fla.-based attorney and insurance company consultant who encouraged a similar exodus by life insurance companies from disability income, or "dis-income" insurance 20 years ago.
"For years we have asked our clients, what are you doing in the dis-income and LTC business? You're a life insurance company and those are so subjective and more casualty-oriented than they are life," she says.
Hasenauer says two human factors work against the LTC business model.
"People who are on long-term care and disability income policies tend to take advantage of the policy more frequently and are sicker than those who don't have policies," she says. "If you are in a facility and the average stay out there is 45 days, if you have an LTC policy, you will stay 90. So if your population is only those who have policies, you don't get the rule of large numbers because everybody is drawing in that pool, everybody is taking advantage of it. And you have more frequent users. So not only do you have the benefits extending beyond the average, you also have the greater incidence of use."
With nothing but aging baby boomers as far as the actuarial eye can see, it's little wonder that MetLife folded its LTC hand.
What do you think? Is long-term care insurance a sucker's bet? If so, how do you plan to pay for your caddy on life's back nine?
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