A pressing question facing many of the 70 million American baby-boomers is whether or not to purchase long-term care insurance (LTCI). Recently, the oldest members of this generation reached 62 years of age. Due to technological advances and healthier lifestyles, baby-boomers are expected to live longer than any previous generation in history. However, boomers will also be facing higher costs than ever before for long-term care services and facilities. With current nursing home rates of $77,745/year for a private room, $68,985/year for a semi-private room, and $35,628/year for an assisted living facility (Metlife Mature Market Institute, 2007), these costs can quickly deplete an individual's assets.
Long-term care insurance has been available since the 1980's and is now a multi-billion dollar industry. More than 100 companies offer coverage, some of which have decades of LTCI experience, while others are relatively new to the LTCI business (American Health Insurance Plans, 2004). Depending on which policy options are selected and the individual's age when the policy is purchased, premiums for LTCI can vary considerably and can be very expensive (Lown & Palmer, 2004). Additionally, agent commissions can significantly add to the cost of LTCI. Consumer Reports states "agents can reap hefty commissions-50 percent of your first year's premium and 10 percent of your payment for every succeeding year" (Consumer nion, 2003).
LTCI is a fairly new type of insurance, and underwriters are still negotiating effective premium levels. There have been several insurance companies that have had to raise their customer's LTCI premiums anywhere from 10% to well over 100%. Premium increases and the ability to pay for the years until long-term care services may be needed are big factors in an individual's overall financial picture.
Purchasing LTCI is an important decision and should not be taken lightly because of costly premiums and the chance that a person could be paying premiums for 30+ years before needing the coverage. The average age of those admitted to nursing homes is 83 (Consumer Union, 2003). LTCI policy owners often become unable to keep up with increasingly expensive premiums that can significantly rise from when the policy was originally purchased to the time the benefits are actually used (Lown & Palmer, 2004). Consumers who purchase LTCI give up the other potential uses of the money spent on insurance premiums (Gold, Vanderlinden, & Herald, 2006). Many consumers run the risk of letting their policy lapse if they purchase LTCI during their working years and fail to consider the affordability of premiums after retirement (Lown & Palmer, 2004).
Unlike car and home insurance, LTCI is not easy to change or replace because it is underwritten based on the age and health of the applicant. LTCI also differs from other major types of insurance and can pose more risk to consumers because the consumer makes a long-term commitment to one LTCI company (Everett, Anthony, & Burkette, 2005). Some consumers are buying LTCI without fully assessing their financial situation and how LTCI will affect their overall financial planning for later life. It is vital that consumers perform an analysis of their retirement and non-retirement funds, before considering a LTCI purchase (Lown & Palmer, 2004).
Considering the rising costs of potentially necessary long-term care services and the expense of LTCI premiums, the decision to purchase LTCI can be complex, overwhelming, and confusing to consumers. Additionally, they are often bombarded with persuasive literature by sales professionals and can easily be misled into policies that are less than ideal for their given situations. (Lown & Palmer, 2004). When it comes to the wide assortment of benefits, costs associated with the policy, and features offered, LTCI policies can differ dramatically from one company to another. There is little help available for consumers to find unbiased information or guidance to assist them on how to compare LTCI policies during the decision-making process (Kassner, 2006).
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PDF Ebook Consumers Ask: Should I Purchase Long-Term Care Insurance?
