The Sad History Of Long-Term Care Insurance

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Long-term care insurance (LTCI) has been sold to consumers for less than 50 years. With little historical data to draw from in pricing policies, insurers made overly optimistic assumptions for decades.

Today's LTCI policy owners often are receiving premium increase notices. They are forced to accept lower benefits or to pay more to keep their current benefits. And individuals who are buying LTCI for the first time are entering the market at a time of upheaval. Here’s guidance.

It’s an understatement to say long term care is a risk that needs to be managed carefully. Individuals who purchased LTCI policies years ago are receiving premium increase notices because of the incorrect actuarial and health risk forecasts made by insurance companies. LTCI is a difficult topic in making a sustainable financial plan that will insure you against the risk of needing to stay at a long-term care facility or receive home care when approaching your final years of life.

Life insurance involves one risk: mortality. In contrast, long-term care insurance involves two risks: mortality and morbidity (health), and these risks occur at the same time. Since the 18th century, when mathematicians were studying smallpox epidemics, problems involving simultaneous risks have been solved by doing multi-state modeling.

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This simple three-state model illustrated here, when applied by an insurer to the monthly risk of a person dying or stricken ill, can result in more than 50,000 different outcomes over your lifetime, according to independent analysis. For example, you could die in month 240. Or you could go on claim in month 113 and die in month 300. Any number of possibilities could occur and the paths are not all equally likely.

Insuring you can receive long-term care in your older years depends on your personal situation and it requires analysis from a professional.

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This article was written by a professional financial journalist for Responsive Financial Group, Inc and is not intended as legal or investment advice.

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