Non-Life Insurance Considerations: Long Term Care

Non-Life Insurance Considerations: Disability

The fact is that women usually outlive men. Many of these same women unfortunately end up in assisted care or nursing homes for a period of time. Long-term care insurance is designed to help with the cost of this assisted care.

While the case can be made that everyone should have long-term care insurance, to be candid, I am not a big fan of this for various reasons. First, the many pros and cons to long-term care insurance are uncertain because the whole long-term care market is evolving. Second, much of the analysis behind the decision to buy long-term care insurance depends on the facts, circumstances, and financial resources of the individuals involved.

Furthermore, there are two realities that everyone should keep in mind:

1) many long-term care policies never pay off because the beneficiary only needed to draw on the skilled nursing provisions of Medicare or passed away relatively quickly without ever using homecare services or an assisted care facility, and

2) As long as longevity continues to increase and medical technology continues to advance, the long-term care market will continue evolving accordingly.

Thus I am not convinced that insurance companies can accurately price such future costs which means that past premiums collected may prove inadequate when the aging population actually needs the benefits. That being the case, the insurance companies will look to their own survival and actively find reasons in the fine print to deny claims and justify delaying benefits that might otherwise be due.

A long-term care program called CLASS (Community Living Assistance Services and Supports) was included in Obamacare. In October 2011, after a 19-month effort, the program was canceled by Health and Human Services Secretary Kathleen Sebelius because no way could be found to make the U.S. Government program financially viable without forcing everyone to enroll. That speed bump adds to my uncertainty about long term care programs.

Scott Anderson, CPA, CFP®, EA is the CFO and Vice President of Tax Strategies for GW Financial, Inc. He earned his MBA from Stanford University. Scott has spent over 35 years in corporate accounting and finance, including experience with several entrepreneurial opportunities in venture capital startups and corporate turnaround situations. He has served as Chief Financial Officer for two emerging public companies and has his own active practice in tax, financial, and investment planning for individuals and small business owners.

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