Long term care insurance is designed to pay out a benefit should you need retirement care such as assisted living, home care or nursing home care. However, long term care insurance may not provide what you expect or might not pay out at all when you need it.
Why you might want to avoid long term care insurance
First off, you could easily pay thousands of dollars in premiums for insurance you may never need to collect. There are obviously worse things than never needing long term care insurance, but what if you do need to collect on the insurance but the insurer denies your claim?
There are many stories of this happening. Whether the insurer does not agree that a certain diagnosis is covered or doesn’t pay as much as expected, these are possibilities you should be aware of. Unfortunately, there’s no way to know in advance if you’ll have any issues when you need to collect on your long term care insurance.
Another issue with long term care insurance is rising premiums. While you might pay reasonable premiums for a decade or two, as you get into your later years, the insurer may start raising your premiums by as much as 50% to compensate the additional risk they take on as you get older.
Alternatives to long term care insurance
If you are concerned about your health in your later years, you can likely put your money better use in an RRSP or Tax Free Savings Account. This can serve as a form of self insurance where you’ll have the money available when you need it, without having to jump through any hoops and red tape.
You should also consider critical illness insurance. This form of insurance pays out a lump sum when you are diagnosed with a major illness. Not only can you use the money how you see fit, but it has a better track record of paying out for the covered illnesses.
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Tom Drake is the owner and head writer of Canadian Finance Blog.
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The insurance company can change its policy of payback anytime it wants. The self insurance you mentioned is a better choice.
Long-term care insurance policies are contracts. The insurance company cannot unilaterally decide to change the terms of contract.
Scott A. Olson
LTCShop.com
Self insure??????? Good luck with that.
The federal government recently did an audit of the claims practices of 7 of the leading long-term care insurers.
You can read about it at:
http://bit.ly/Federal-Audit-of-LTCi-Claims-Practices
Scott
I think the main problem with LTCi as it is being sold today is the uncertainty that Tom talks about.
Scott, while you are right they can’t unilaterally increase rates – they do it with the approval of the State insurance company. Here are New York’s recent rate increases:
http://www.ins.state.ny.us/ltc/ltc_prin.htm
There are some cool WholeLife/LTCi blends that could be an option as well as the ones you provided Tom
Evan,
I was responding to “Doable Finance” statement that: “The insurance company can change its policy of payback anytime it wants.”
Doable Finance wasn’t talking about the premiums. He/she was stating incorrectly that the conditions for qualifying for benefits and the benefits in the policy, could be changed at anytime by the insurer.
That is completely false.
In regards to your statement, there are now two types of long-term care policies that can never have a rate increase. Here’s an explanation of them:
http://bit.ly/Level-Premium-LTC-Insurance
Scott
I’m from the US and not Canada, so I’m not sure if this is available, but we have hybrid products that can take a lump sum of money and use it for one of three purposes depending on your circumstances.
1. Universal life insurance in case of death
2. Long term care insurance in the event long term care need
3. Return of premium if neither #1 or #2 occurs.
Derrik Hubbard, CFP
http://www.yourfinancialpurpose.com/blog
Tom,
I think you should learn more about long term care before you offer an opinion. I’d sure hate to have you as my retirement advisor.
Steve, if I stated anything incorrectly, please let me know.
I research my posts in advance, especially the “Insurance You Can Do Without” series as it leads to many comments from those that have had good experiences (always good and bad stories with anything) and also those that sell the insurance.
Tom,
Starting from top to bottom, these statements from your article are either incorrect or do not prove your premise:
“First off, you could easily pay thousands of dollars in premiums for insurance you may never need to collect.”
“but what if you do need to collect on the insurance but the insurer denies your claim?… There are many stories of this happening. Whether the insurer does not agree that a certain diagnosis is covered or doesn’t pay as much as expected, these are possibilities you should be aware of.”
“the insurer may start raising your premiums by as much as 50% to compensate the additional risk they take on as you get older.”
“If you are concerned about your health in your later years, you can likely put your money better use in an RRSP or Tax Free Savings Account.”
“Not only can you use the money how you see fit, but it has a better track record of paying out for the covered illnesses.”
Everything else in the article is fine.
Scott
Scott, there are many stories of people being denied when they need the benefit of the insurance they’ve paid premiums on for so long. some of these stories can be found in Money Sense and USA Today.
Much like most of the posts in the Insurance You Can Do Without series, they come down to being overpriced and/or have shaky records for dependability.
It you can’t count on the insurance being there for you when you need it, I recommend that the money is better spent in an RRSP as a form of self insurance that will grow tax free until the age you’d be needing it. As an added bonus, if you fall in the majority of people that don’t need long term care, then you’ll have extra funds to share with loved ones through estate planning.
When you did your research, how much money did the LTC insurers pay in claims last year?
How much have they incurred in claims over the past 20 years?
What did you think of the Dept. of Health & Human Services audit of LTCi claims that was published last year?
Scott
I believe your comments are way too general and broad based. Owning a car is something people can do without as well but not everyone. Not all ltci carriers take pert in the activities you mentioned. There are also many stories where a good policy saved families from total destruction. R
Sorr, sent it before finishing it. Report both sides…fairly. But as an advisor to say long term care insurance is something you can do without. That’s irresponsible. I have paid homeowners insurance for 40 years. Never had a single claim…never had to use it. I hate paying for it…but I wouldn’t do without it. Nobody likes paying for ANY type of insurance, but sometimes it makes sense to include these coverages in our portfolios.