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What's the future of long-term care insurance?

Recent developments in the long-term care insurance market in 2010 have rattled consumers. However, that turmoil could just be a short-term headache, as experts note that a slew of options remain if you want to buy a policy. Keep in mind, though, that insurance premiums for long-term care have been on the rise.

Citing financial constraints, MetLife will stop writing new policies for long-term care insurance effective Dec. 30, 2010. Meanwhile, John Hancock plans to raise rates on many of its long-term care policies by about 40 percent in 2011. On top of that, Genworth Financial is eyeing a rate hike of 18 percent on some of its long-term care insurance policies in 2011.

The stakes in long-term care are rising as the American population grows older. By 2020, an estimated 12 million older Americans -- the majority of them women -- will require long-term care services, federal health officials say. A study by the U.S. Department of Health and Human Services indicates 40 percent of people who reach age 65 likely will enter a nursing home at some point.

long term care insurance

Eleanor Blayney, a consumer advocate for the Certified Financial Planner Board of Standards, says the shakeup in the long-term care insurance industry shouldn’t keep consumers from considering such coverage.

“I still think it’s an important coverage for consumers,” Blayney says.

“(The shakeup) is reflecting, in the scheme of things, that the coverage is fairly new, the risks were not fully understood and not appropriately priced, and premiums are going up, but it’s not a reason to cancel or not buy. It’s still an important insurance coverage for those whose financial situation would be ruined by needing extended nursing care.”

Although MetLife has been one of the big players in the long-term care insurance business, dozens of other insurers remain committed to this kind of insurance, according to Jesse Slome, executive director of the American Association for Long-Term Care Insurance, a trade group. Moreover, some insurers have exited the long-term care insurance business only to return later, including Transamerica and American General.

“MetLife decided to stop offering coverage because the economic conditions today make it harder than ever to make it as profitable as their other lines of business, and they have to answer to Wall Street and investors," Slome says.

Malcolm Cheung, vice president of long-term care insurance at Prudential, acknowledges the long-term care insurance business is undergoing some consolidation, but he says this may not be a sign of instability as much as it is a natural step in the maturing of a relatively young industry.

Guidance amid uncertainty

Given the upheaval in the long-term care industry, what should potential policyholders do?

"The natural thing is to say, 'I'll wait and buy it at a different time,' but that's a costly error for two reasons," Slome says. "Every year you wait, the premiums go up, and you may not be able to qualify because of your health."

long term care insurance

If you're shopping for long-term care insurance, the American Association for Long-Term Care Insurance urges you to keep in mind that:

• Costs vary widely from one insurer to another, by anywhere from 30 percent to 80 percent for virtually identical coverage. So it pays to compare.

• Discounts are offered when two spouses apply for coverage rather than just one.

• Insurers require you to meet certain health qualifications to obtain coverage. Discounts are provided for people in good health, and that discount doesn't disappear if your health takes a turn for the worse.

• Financial ratings of long-term care insurance companies should be factored into your buying decision. For more information, visit the section of the association's website regarding financial ratings.

• Figure out what other sources of income you may have to pay for long-term care, such as Social Security, a pension and a 401(k).

Adding up the costs

The average first-year premium for an individual long-term care insurance policy purchased in 2009 was $2,181, according to LIMRA, a research and consulting organization for insurance and financial services companies.

However, a June 2010 report from the American Association for Long-Term Care Insurance shows more than one-fourth of policy buyers age 61 paid less than $999 a year, and nearly one-fifth percent paid between $1,000 and $1,500 a year. Even for buyers between ages 61 and 75, more than one-fifth of them paid $1,500 a year or less.

Other key facts about long-term care insurance:

• While people may think long-term care insurance is only for older Americans, a survey by the Unum insurance company showed that 43 was the average age of someone buying group long-term care insurance in 2008.

• Only about 10 percent of seniors currently have long-term care policies, according to the Kaiser Family Foundation.

long term care insurance

• More than 10 million Americans have purchased long-term care coverage, the American Association for Long-Term Care Insurance says.

• Holders of long-term care policies typically earmark their benefits for at-home care or assisted living care.

• Forty percent of Americans who use long-term care services are ages 18 to 64, the Department of Health and Human Services says.

The Kaiser Family Foundation reports that Medicaid accounts for 42 percent of national spending on long-term care and nearly 50 percent of spending on nursing home care. Medicaid pays for services often excluded from Medicare and private insurance, but it kicks in only after your other assets are exhausted.

Despite the availability of various types of insurance, many people who need long-term care rely primarily on unpaid help from family and friends, the foundation says.

"If you don't want family taking care of you, it costs about $75,000 per year to be in a nursing home," says Elinor Ginzler, a senior vice president at AARP.

Insurance: Just one part of long-term care

Does Ginzler think everyone needs long-term care insurance? No. But everyone should develop a long-term care plan, she says.

"Consumers aren't thinking about it, and when they do, they've got some unbelievably misguided thoughts," Ginzler says. "Some people can talk more about a will than how they are going to be cared for with assistance. Long-term care planning is way broader than if you should just buy insurance; it's only one point along the way."

Something that may help along the way is on the horizon.

The Community Living Assistance Services and Support (CLASS) Act, included in the federal health care reform law, promises to provide some financial relief for long-term care costs. Most provisions of the CLASS Act -- a consumer-financed, federally administered insurance plan -- take effect in January 2011. However, folks likely won't be able to sign up for the plan until 2012 or 2013, according to the American Association of Homes & Services for the Aging.

"It's a voluntary payroll deduction that begins in the workplace. Once you have paid in for five years, you would be vested and there would be a cash benefit for long-term care services," AARP's Ginzler says. "But long-term care insurance isn't going to cover everything. It only provides you with some assistance."

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