No. of Recommendations: 4
WSJ has a paywall, so can't read the article. But I'll offer this from my working experience with LTCi

When qualified LTCi was first offered in 1998, it was priced WAAAAAAY under what it should have been priced at. Insurers claim they didn't know about longevity, prolonged interest rate suppression and the low lapse rates until after the fact. Right! Insurance actuaries are arguably the smartest guys in the room....they have to be for what they must do to keep an insurer profitable, and you don't see many insurers going out of business. They know what they are doing and insurance exec knew EXACTLY what there were doing in selling so many policies at about 60% of what they should have sold them for. Sales commission were high and bonuses were paid. All was well in the insurer's board room.

So now we've got a situation where policies are priced where they should be (very expensive for the LTC risks they insure), few insurers are still offering them and premiums continue to climb, most at double digit rates where states will allow them.

But pricing you, the policy holder, to such a high level that you let the policy lapse and all those past premiums go down the toilet, is not the greatest risk. A greater risk is the insurer will deny the future claim. These policies all must be triggered by the inability to perform at least 2 of the 6 ADLs or have a 'substantial' cognitive disorder. But the actual definition of the ability to do an ADL is subjective and is determined by agents of the insurer, not medical authority as was the case with pre-qualified policies (referred to as medical necessity). Then there's the 'gotchyas' of requiring care be given only in a licensed facility and that all caregivers must have a state certification or the facility must be JCAHO approved, and so on. The risk of claim denial will be based on the insurer's capital reserves. If these get low, you can count on an increase in denial of claims.

Keep in mind, when the insured files a claim, S/he will be in no mental or physical condition to take on the insurers with a claim denial...that will be up to the adult children. So the kids need to be part of that LTCi policy from the get-go....or they'll just shrug their shoulders with the claim denial letter...and the insurer knows this.

Preserve investment capital and self pay if needed at end of life

BruceM
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