Long Term Care Insurance: Do Costs outweigh Benefits?

Washington, DCIncreasingly, consumers are finding that long term health care insurance is costing them more than they bargained for. Particularly in this economic climate, some people are shelling out long term care insurance they can no longer afford, yet at the same time can't afford not to—a typical "Catch-22" situation. Are these hefty increases legal?

Last week, LawyersandSettlements reported that one woman's policy was increased from an annual fee of $2500 to $7000 within a period of ten years. If the fees are hiked up further, she may have to cancel the policy—and that's how insurance companies make hefty profits.

How did it Happen?

If you purchased long term health care insurance 10 or 20 years ago, predicting you may need either home health care of a long-term stay in a full-care facility in your 'golden years', chances are you were getting a bargain—at the time. Some unscrupulous insurance companies, such as Conseco and Penn Treaty (just to name a few), are currently being investigated and sued for bad faith practices.

Basically, they sold long term care policies to gain control of the market without the foresight--or perhaps blind greed—to recognize that health care costs would increase, and that the number of seniors (who are living longer) would increase. Insurance companies are in business to make money and without increasing benefits, the insurer would lose. Some companies either increase benefits or deny claims altogether.

Many people who purchased insurance were not aware—because they may not have been told—that their policy would increase to the point that it might affect their standard of living. Perhaps their retirement income won't match the cost of living. If an insurer doesn't fully explain the cost of premiums to a potential buyer, some unwitting policy holders find they can no longer meet unexpected expenses or future premium increases. As well, long term care insurance doesn't cover all the expenses associated with long term care, so some costs have to be paid out-of-pocket.

Insurance companies count on a certain percentage of aging policyholders to cancel their policies as premiums increase—for insurance sales agents who are paid by commission, it's business as usual.

Who Needs Long Term Care Insurance?

Generally, middle-income earners are not eligible for Medicaid and may not have enough assets to pay outright for expensive home care or time in a nursing home. If you decide to purchase long term care insurance, it's better to start paying sooner than later because policy premiums are based partly on your age and health. Most experts agree that buying a policy in your 40s is the most financially viable.

Get Long Term Care Advice First

You may want to talk with a financial adviser as well as the insurer before purchasing a policy. And shop around—not all insurance companies are reputable. Take the time to check on the ratings of companies like A.M. Best, Standard & Poor's, Weiss Research, Duff & Phelps or Moody's Investors Service: they check the financial books of insurance carriers and make sure those companies will still be in business if you ever need to collect benefits.

Although every state regulates health insurance, some insurers practice bad faith insurance practices. Keep in mind that insurance companies have skilled lawyers on their side, often to take utmost advantage of existing laws--and the policy holder. If you don't understand the policy's term or don't fully understand what the future costs may be, ask a lawyer experienced in long term health insurance to go over the fine print; an insurance lawyer will interpret your potential policy and help you understand the overall costs.