David Lerner Associates: Why Long-Term Care Insurance Costs Are Up
The AALTCI, which analyzes costs for the most popular policies offered by 10 leading insurers, notes that a healthy 60-year old couple can expect to pay about $3,335 a year for roughly $340,000 of current benefits, which will grow to about $610,000 of benefits when the couple turns 80, thanks to inflation growth factored into the coverage.
At the root of rising costs are a number of challenges facing the long-term care insurance industry, notes David Lerner Associates EVP Martin Walcoe.. He explains that policyholders are living longer and filing claims at earlier ages than insurers had predicted, resulting in losses for some long-term care insurance companies. At the same time, insurance companies have been receiving meager yields on the fixed-income investments they count on to pay future claims.
As a result, some of the long-time players have exited the long-term care market, while others are tightening up on the benefits they offer new policyholders. Other insurers are no longer offering inflation protection riders, which increase the dollar limit on daily benefits each year to protect policyholders from rising healthcare costs.
Soaring prices and tighter restrictions are prompting some consumers to rethink long-term care insurance. For instance, some are increasing the elimination period—the amount of time that you pay out of pocket before the policy kicks in. “It’s similar to increasing the deductible on your auto insurance,” Walcoe explains. “You might opt to cover long-term care costs from an alternative source like Medicare or a 401(k) plan for 90 days instead of having the policy start paying out immediately.”
Then there’s the strategy of buying long-term care coverage when you’re young and healthy. Premiums for long-term care insurance are based in large part on your age and health when you buy the policy. “You can save significantly—not just now, but perhaps over the lifetime of the policy as well— if you buy a policy when you're under 60 and healthy.”
The federal government sweetens the pot by offering incentives for taxpayers who purchase long-term care insurance (some state governments do, as well). The deduction amount is based on limits set by the IRS and increases with age. For instance, deduction limits for individuals range from $350 for individuals age 40 or younger in 2012 to $4,370 for individuals age 70 or older. Taxpayers who itemize on their federal income tax return may be able to deduct the cost of tax-qualified long-term care insurance policies when total medical expenses exceed 7.5 percent of adjusted gross income (AGI).
The American Association for Long Term Care Insurance recommmends that anyone considering long-term care insurance carefully compare rates, as policy prices in some categories can vary by as much as 132 percent between insurers.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates,Inc. (DLA). This material does not constitute an offer or recommendation to buy or sell securities and should not be considering in connection with the purchase or sale of securities. Member FINRA & SIPC.