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Investing/Strategies / Retirement Investing
|Subject: Re: Long-Term Care Insurance||Date: 4/8/2012 9:46 PM|
|Author: BruceCM||Number: 70515 of 78166|
You might want to think about this, carefully (this post is a bit long, but it might be in your interst to read my thoughts)
Qualified LTCI is a result of HIPAA of 1996, with the first policies, as I recall, being sold in 1998. Prior to that, it was often called "Nursing Home" or "After Hospitalization" insurance, whose coverage varied widely between carriers. HIPAA standardized important provisions of LTCI, to include what may trigger benefits, offering inflation adjustors, tax treatment of premiums and future benefits, etc.
1. The concept of LTCI is like any other household catestrophic risks, such as property, liability (particularly auto), disability and life. However, it is the ONLY forms of insurance that you are paying premiums today for a benefit that, if ever triggered, will likely not happen for decades (permanent life insurance also collects premiums today for loss decades hence...but it can build cash value while QLTCI cannot, and death is inevitable, QLTC disability is not). This, IMHO, is the first source of problems for this form of insurance.
2. When first offered, insurers scrambled to get market share, heavily marketing this new product, with all manner of 'white papers', showing that many...if not most...individuals will spend time in assisted living and nursing homes, consuming huge amounts of their savings, which, of course, LTCI would alleviate or solve. This is the source of the second problem for this form of insurance.
The real problem with #1 is underpricing policies at the start. Because there is not a lot of actuarial data available yet for QLTCI (the inability to do 2 of 6 Activities of Daily Living or 'substantial' imparement from cognitive mental disorder (such as Alzheimers), so the insurance companies made up their own, most likely using future projections on loss (claims) whose present value would be as small as possible, including using an optimistic earnings (discount) rate on net premiums paid. This created artificially low premiums for the benefits defined in the policy...leading to sharply increasing rates over the years. We are seeing this begin to happen now.
The #2 problem with this form of insurance is that it is being marketed as a cost sharing scheme...not true insurance. This will result in a lower than 'expected' lapse rate, as policyholders consider what they've paid in as a kind of savings account...and individuals typically do not abandon savings plans. This exaccerbates the problem of underfunding to the insurers.
No one knows what the future holds, but based on what I've seen and the rough calculations I've done, most insurers will not have nearly enough in capital reserves to meet future claims. When this happens, insurers tend to go into 'crisis' mode, typically denying or delaying most claims. And because there are not clear cut standards for what constitutes the inability to perform an ADL, this is furtile ground for footdragging and stonewalling or just flat out denying of claims by the insurers.
One final note....when you or I get to the point that we can't function due to a cognative disorder or inability to do a second ADL, whose going to file our LTCI claim? Will you or I at this point be able to go to the mat with an insurer who has denied our claim? If not, who will? If your adult children, do they know all about the coverage and what should trigger benefits? Will they do battle with the insurer if they deny the claim?