Illustrating the Value of Long Term Care Insurance
Today many Americans want to see insurance plans like government social programs that they pay into and then expect to be fully covered. Of course, there’s not an actuary under the sun that can pull off that hat trick and even mighty Uncle Sam requires taxes and borrowing to pay for his unfunded entitlement programs; insurance companies don’t work that way.
For years, many insurers provided long term care insurance benefits that were affordable and provided a lifetime of benefits if necessary. Today those options are going the way of the Dodo bird as long term care insurers grapple with increasing claims and historically low interest rates. This perfect economic storm has caused insurance companies to raise rates, cut benefits, and institute tougher underwriting. As a result, most seniors today cannot afford lifetime coverage, if it’s even available, and many balk at smaller policies that fit within their budgets.
Never the less, smaller policies that serve as co-insurance plans still offer huge value in protecting a family’s assets from the potentially devastating cost of long term care. A recent conversation highlights the need to help consumers understand the real value insurance provides.
A gentleman recently told me he wasn’t interested in long term care insurance and so I asked him why. His reason was simple: his father, who had recently passed away, had a long term care policy that only paid $3000 per month toward the care he received in a nursing home. This man and his sister were left to pay the difference out-of-pocket totaling a whopping $60,000 over four years. The two siblings were happy to provide the money needed to pay for their father’s care, but his insurance was a bust; after all, he paid into the policy for ten years and then, just when he needed it most, it didn’t pay for all of his nursing home expenses.
As a result, this man certainly wasn’t interested in buying long term care insurance. As far as he was concerned, his father would have been better off investing the money he spent on the insurance premiums. “I’m not going to make the same mistake,” he said.
I was sorry to hear about the loss of this man’s father and I knew it must have been a challenge to help pay for his care, but I wanted to get to the bottom of this.
I asked the man if he knew how much his father had paid for his long term care policy and he answered that he had paid about $200 per month for the coverage. Doing some quick math, I calculated that his father had paid about $25,000 for his policy before needing care. “Exactly!,” the man replied, “he paid all that money to the insurance company and they still didn’t pay for all of his bills.”
“Certainly, $25,000 is a lot of money,” I replied, “but if I understand correctly, the policy paid $3,000 per month for almost four years, is that right?” Yes, he nodded.
“That’s unbelievable!,” I said. “Your father paid $25,000 for a policy that paid out $150,000 in benefits. It sounds like what you’re really telling me is that you’re unhappy with your father for not buying more insurance because THAT was the best investment he ever made.”
After a brief pause, shaking his head, he said, “Hmmm, I never thought of it that way.”
He was rethinking the matter, so I advised,”You know, you’re absolutely right – you shouldn’t make the same mistake your father made. When you buy long term care insurance for you and your wife, make sure you buy enough that you won’t cause a financial burden for your children when you need care.”
With over ten thousand Americans retiring every day, the long term care need is real and growing. Unfortunately, many consumer’s simply can’t see the forest for the trees, so it’s critical to illustrate the value of insurance in a way that addresses their needs and concerns. For many, it will be the best investment they ever made.
