“W” asked me about group long term care insurance a few weeks ago:
I’m 47, single with kids and in good health. My employer is offering group LTC insurance. I was thinking I would wait until I’m at least 55, maybe 60, before buying, if at all, but I can get in now with no medical underwriting during the initial open enrollment period. I have no debt and can afford the premiums, but should I buy? Or am I better off investing that money toward retirement?
I have to say that I’m ambivalent about long term care insurance. For some people, it’s a very smart idea. For others it’s a waste of money.
As you know, long term care insurance provides (some) payments in those cases where you suffer from a qualifying impairment. I’m ambivalent about this coverage for several reasons. First, I’ll concede that there is a good chance you’ll have a qualifying health problem before you die. But it’s by no means certain that you’ll incur expenses associated with those health problems long enough to justify the premiums you pay for the coverage over an extended period of time.
My next problem with LTC is that the insurance companies have been jacking up the insurance premiums at a pretty healthy clip. The odds are that the premiums will continue to rise. As a result, you may find yourself in a situation where just when you most need the policy (after you retire), you won’t be able to afford the coverage.
Now in the case of group coverage the situation changes. First the premiums are usually lower than with individual policies. Second, the premiums are probably more stable than the individual policies. Rates probably won’t rise as fast as individual policies might.
Here are the three issues to consider when you consider group long term care insurance:
1. Company Stability
Insurance is great – as long as the insurance company is going to be there to settle claims. Investigate the safety of the insurance company. Get the ratings and the rating history. If the ratings have decreased over the last five years, I’d be really careful. Look at the company’s financial records to see how they are doing. Find out if the company is on your state’s watch list by calling your state insurance commissioner.
Someday, W is going to retire. Will she be able to take her LTC policy with her when she does? Now is the time to find out. W doesn’t really need the coverage now, but she might need the long term care insurance twenty or more years from now.
3. Qualifying for Benefits
When and how you qualify for long term care benefits is a huge issue with these policies. Often group policies are inexpensive because they make it almost impossible to qualify for benefits. Most long term care insurance policies pay you if you are unable to perform two out of seven daily activities of life. If your policy is more restrictive, the coverage may not be worth having.
Assuming W’s group long term care insurance policy passes muster on the three items above, it might be a good deal. She’s a single mom with kids. Assuming she doesn’t have the money to self-insure, she might be doing a smart thing by having this coverage in place. If she waits to buy long term care when she needs it, nobody will sell it to her. That’s the rub with all insurance — you have to buy it when you don’t need it.
What would your advice to W be?