The cost of long-term care can be devastating if one is not prepared. Unfortunately, the long-term care insurance (LTCI) business has not been financially rewarding for major insurance carriers…they are abandoning the business in record numbers. As a result, the need to plan for the costs of long-term care is not going away with the insurance plans. So what should one do? Several options exist, which may provide the solution and simultaneously offer substantial tax breaks.

What is the problem with LTCI?

The cost of long-term care has skyrocketed may cost as much as $4,000 to $8,000 a month to cover the cost of in-home care or skilled nursing home expenses. The costs increase exponentially when today’s longer lifespans are taken into account.

To prepare for these costs, insurers have relied on the fact that policyholders will generally make payments over an extended period of time before making a claim and have invested these payments to build adequate reserves. Lower-than-expected investment returns coupled with increasing claims have left many insurance carriers inadequately prepared for the rate at which long-term care costs have risen.

As a result, 10 of the 20 largest insurance companies have stopped offering “traditional long-term care insurance” in the past five years, with Prudential and MetLife exiting the business most recently. Consequently, it has become much more difficult to purchase adequate long-term care coverage.

Though insurers who have policies outstanding cannot cancel the policies, they can petition state insurance commissioners to allow premium increases. Some insurers have chosen to take this route to manage the costs of the policies currently in effect.

What is the new plan?

The plight of insurance carriers that offer long-term care policies highlights the importance of preparing for this expense. If a person already has a long-term care policy in effect, but is facing significantly increased premiums, it is possible to maintain current premium levels by reducing inflation protection benefits on the policy. However, this is the exact reason many people purchase a policy in the first place…to protect against the rapidly rising costs of care.

There is a type of deferred annuity product known as a long-term care annuity which may provide a more appropriate solution. These hybrid annuities contain long-term care riders that allow a person to choose the amount of long-term care coverage desired. Some products offer the choice to include inflation protection benefits.

The value of the annuity grows in the same manner as a “traditional annuity product”, but when the funds are withdrawn to cover the cost of long-term care, they are taken tax-free. The only downside is that this type of annuity requires a relatively substantial initial investment, usually $50,000 to $100,000 and works for many. However, there is another way to make this work without a substantial initial investment, just recently introduced by at least two major life insurance carriers. Contact EHB Insurance Group for more information..  


Understand that, while long-term care insurance may still be a smart choice, it should be considered a method of easing the burden of the cost of long-term care and perhaps not as a way to cover the costs entirely. Investing in something is better than nothing at all. and the smartest way to prepare for tomorrow’s rising costs.