Questions to Consider on Long-Term Care Coverage

Tom Murphy, AP Business Writer

The market for long-term care insurance grew even more foreboding for some consumers last year when big insurers announced sizeable premium hikes.

Insurers that provide coverage for a nursing home stay, adult day care or a home health aide have seen higher-than expected claims at the same time their ability to grow a cash cushion has been hampered by low interest rates. Because of the squeeze, MetLife Inc. recently stopped selling coverage and Genworth Financial Inc. and John Hancock raised their prices.

That has made shopping for the right coverage all the more challenging.

Here are some things to consider when shopping for a policy.

— What is long-term care and what's driving up premiums?

Long-term care insurance is used to pay for care if you have a debilitating condition that keeps you from performing daily living activities like eating or bathing.

About half of the money used to pay claims comes from returns on invested premiums. Long-term interest rates have fallen, and that means the invested money isn't growing at the rates insurers expected when they issued some policies in the early 1990s.

On top of that, more customers are keeping their policies and submitting claims than insurers expected. Insurers had assumed that as many as 5% of the people who bought policies would lapse or stop payment, but only about 1 percent have, said Jesse Slome, executive director of the American Association for Long-Term Care Insurance, which represents independent agents and brokers.

Genworth has said it needs an 18 percent increase on some older policies, and John Hancock is looking for an increase of about 40% on most of its policies.

Even though MetLife left, Slome estimates that there are still between 20 and 30 carriers in the market.

— Should I buy a policy before more companies leave the market or rates climb even higher?

Not necessarily. The best thing to do is shop around.

The premium increases aren't a sign that all prices are about to soar. Waves of rate hikes and consolidation have hit the industry in the past, said Anne Tumlinson, senior vice president for long-term care at the private research firm Avalere Health.

Some policyholders will go several years without a rate hike. Aside from insurer assumptions on interest rates or use, increases also depend on the amounts state regulators require an insurer to keep in reserve to pay claims.

— What's the right age to buy one of these policies?

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