The Sad History Of Long-Term Care Insurance

Published Thursday, March 24, 2022 at: 9:18 AM EDT

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Long-term care insurance (LTCI) has been sold to consumers for about 50 years. With little historical data to draw from in pricing policies, insurers made overly optimistic assumptions for decades. As a result, LTCI policy owners often are subject to bad surprises.

LTC insurance policyholders are often receiving premium increase notices. They are being forced to accept lower benefits or pay more to keep their current benefits. Individuals buying LTCI for the first time are entering the market at a time of upheaval and would be wise to cautiously navigate the dark world of LTCI. Here’s guidance.

It is an understatement to say long term care is a risk that needs to be managed carefully. Individuals who purchased LTCI policies many years ago facing premium hikes because of incorrect pricing assumptions made by insurance companies. Making a sustainable financial plan insuring yourself against the risk of needing to stay at a long-term care facility or receive home-care when approaching your final years of life Is fraught with risk.

Life insurance involves one risk: mortality. In contrast, long-term care insurance involves two risks --mortality and morbidity (health) -- and these risks occur simultaneously. Since the 18th century, when mathematicians were studying smallpox epidemics, problems involving simultaneous risks have been solved by doing multi-state modeling.

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The simple “three-state model” illustrated here, when applied by an insurer to the monthly risk of a person dying or needing care, can easily result in more than 50,000 possible outcomes over a lifetime. For example, dying in month 240 without ever needing care is one possibility. Another is you could go on claim and collect benefits in month 113 and die in month 300. These possibilities are not all equally likely.

The actuarial math driving prices of LTCI needs to be broken down to determine the value of an LTC insurance policy to a policyholder according to health, age, and other factors. Insuring you can receive long-term care in your older years depends on your personal situation and it requires analysis from a professional.


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This article was written by a professional financial journalist for Yukon Wealth Management, Inc. and is not intended as legal or investment advice.

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