Because of a personal tragedy I have been away from this blog for an extended period. I may write about this tragedy when the time is right but for now, I need to return to retirement planning and related topics. The need for retirement planning and living has not ended. Today, the topic is long term care insurance. There have been some important developments worth sharing.
Most of the news I read about long term care insurance is bad. Insurers as a group did not properly analyze their risk. Consequently, they are imposing huge premium increases on policy holders and/or exiting the business altogether.
The Wall Street Journal has engaged a number of personal finance experts to debate several topics of importance to the rest of us. One of these recent debates was over the question of whether we should purchase long term care insurance. The expert in favor of purchasing LTC insurance is a professor of health economics and policy at George Mason University. His argument is that “hoping for the best” is not a wise or effective financial strategy.
The expert that disfavors LTC insurance is a staff attorney at California Advocates for Nursing Home Reform. His argument is that instead of buying the insurance with a $3500 annual premium, invest the premium amount., giving you $70,000 plus interest in 20 years. There is a huge psychological flaw in that argument. The average consumer will not have the discipline to actually invest the premiums that are not paid. They are much more likely to spend it. Also, for older boomers, there is no reasonable assurance of 20 years without a long term care need.
Here is the link to full debate article which is definitely worth reading.
Financial and retirement writers are regularly pumping out articles about long term care insurance. A lot of what is written is negative, such as when an insurance company decides to stop selling long term care policies. For example, my wife and I bought long term care policies from Met Life in 2008. Met Life later announced that it would stop selling new policies at the end of 2010.
What are your plans for long term care? Is it the “I won’t need it so don’t worry about it plan?” That is not a plan, of course, and if you are leaning in that direction (or just sticking your head in the sand), I encourage you to read why I bought long term care insurance and predicting the costs of long term care. That may jolt you back into a state of reality. (Sorry – someone had to do it!)
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A frequent objection to the purchase of long term care insurance is that years of premiums may be wasted if long term care is never needed. Similarly, many prospective retirees are reluctant to invest in an immediate annuity because of a concern that they will die long before receiving a meaningful amount of annuity income. Insurance companies are now introducing products that are designed to address these purchaser concerns. One of the products is called a hybrid annuity with a long term care benefit or rider. Similar products are called long term care annuities.[Continue Reading]
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