By Alex Albert, CFP®
- LTCI covers care for chronic medical conditions━outside or inside the home
- The industry’s pre-pandemic circumstances have made coverage even harder to get
- Insurer selectivity is bolstering hybrid coverage with upfront premium costs
Estimated read time: 2 mins
Since the pandemic began in 2020, interest in estate planning has risen as well as a greater interest in Long-Term Care Insurance (LTCI), according to insurance industry reports. LTCI is an insurance product that helps pay for the costs associated with long-term care, such as a chronic medical condition, disability, or a disorder such as Alzheimer’s.
This care is not covered by health insurance, including Medicare and Medicaid. The increased interest in LTCI since the pandemic began may be attributed to people seeing that the need may arise suddenly, and much earlier than anticipated.
It Covers Home Care
During the pandemic, many people had the unfortunate experience of losing a loved one in a nursing home or other long-term care facility. While it is well known that LTCI covers individuals in nursing homes, it also covers home care expenses, something the industry is now stressing to applicants and policyholders. In fact, more than 80 percent of adults plan to remain in their homes as they age and prefer a home setting over a nursing home, according to AARP.
According to The COVID Tracking Project, 34% of COVID-related deaths were individuals in these assisted care facilities. In addition to the number of deaths, many facilities were on lockdown for extended periods of time, forcing family members to go weeks or months without in-person contact, and many now face staffing shortages.
LTCI Insurers Suffered Major Losses Pre-COVID
Before the pandemic began, the number of insurers offering LTCI had decreased significantly from 2004 to 2020. The reason being – wide mispricing errors by the insurance industry. The industry suffered great losses as the premiums charged and the investment income received was much less than the amount of claims paid.
Insurer Selectivity is Driving Hybrid Policies with High, Upfront Premiums
Even now, with a renewed interest in LTCI, it is more difficult than ever to obtain LTCI as insurers are turning down more applications. Some carriers are now requiring in-person medical exams, when a questionnaire and review of medical records were all that was previously required. Others are lengthening their pre-existing condition list and lowering the age limit for issuing policies. Some carriers may deny coverage if the state you live in has a high COVID-19 rate, or it may force the insured’s coverage to be delayed.
The difficulty in receiving a LTCI policy has consequently increased the interest in hybrid policies that link LTCI to an annuity or life insurance. These have less stringent underwriting requirements and they resolve the “use it or lose it” issue, as holders will receive a payout either through the death benefit, annuity income, or LTCI claim. The downside to these policies is that they typically require up-front payment of premiums, which can be expensive. Because of this, many opt to self-insure.
Issues in our country’s long-term care system have been around for decades, though the pandemic has only amplified the need for insurers, lawmakers, and health-care providers to address these flaws sooner. Now, with the growing difficulties in obtaining a policy, it’s better to plan far in advance, and Lincoln Capital has the resources and trusted relationships to help.
Please feel free to contact one of our Certified Financial Planners to start the planning process or if you have any questions.
About The Author
Alex Albert is a Certified Financial Planner for Providence-based Lincoln Capital, a financial planning and wealth management firm. He is a graduate of the University of Rhode Island and earned CFP® certification from Bryant University.