“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?
William Keat says
Thanks for sharing this kind of information.
Its a helpful article.
Paul Manina says
“W” should compare her group plan with individual LTC policies before making a decision.
With the group policy, as she points out, she can “get in now with no medical underwriting”. Since she is in good health, she would be subsidizing those in poor health who are “getting in now”. Group policies rarely offer discounts for good health. Furthermore they offer a limited number of options, which may or may not be right for her.
You are right, Neal, Long-Term Care insurance is not appropriate for everybody. “W” should do her research and meet with someone who specializes in LTC, rather than make a decision just because her employer has decided to offer it.
A good LTC specialist will help her (a) make an informed decision as to whether LTC insurance is right for her or not and (b) compare her group plan to individual plans from a number of carriers.
Neal Frankle says
Paul. I agree. Unfortunately, I think it’s tough to find a “good” agent. Many are just salespeople.
Thanks so much for sharing this valuable information!
Neal Frankle, CFP ® says
You are welcome!
Like all insurance, LTC is a gamble. I’ve been paying home insurance for 30 years & never made a claim, but have been in 2 house fires that ruined people with too little insurance! My husband & I just made the decision to enroll in my employer’s LTC, also with no underwriting. We are both in our 50’s, he is retired, & I’m 2 years away from retiring. The odds are we’ll live to nearly 90, and although we are in good health, we don’t expect family care in our declining years. So we finally decided in favor of a LTC plan that provides about half the daily amount needed for a nursing home in our state, for up to 2 years. For now, that will cost us about $1400 per year with no inflation protection. We look at LTC as a special savings account for the end of our lives. The total potential payout over 30 years will be well worth the investment, and other money can cover the other half of costs by then. We’ll reevaluate periodically as the years go by. Not a pleasant exercise, but you just have to look at the details of the plan options & be practical. And the devil is in the details–be sure your plan covers cognitive impairment, not just physical. Best of luck!
Neal Frankle says
Molly. it sounds like you made a smart decision. Bravo! I like your thought process.
I would definitely look at the policy and the requirements. Many people end up in nursing homes, but I think the average length of stay is only about 3 months. Now both my grandmothers had been in a nursing home for many years. One had Alzheimer’s and one is currently 95. Since women tend to live longer, it might be a good idea.