How to Avoid the Pitfalls of Long-Term Care Insurance

While you were in the early stages of planning for retirement, you may have considered long-term care insurance but ultimately decided you didn’t need it. Now that you’re getting older, you might worry that you’ve missed the boat and no longer qualify for an affordable policy. However, the long-term care insurance market has changed over time, resulting in some unexpected challenges and dissatisfaction among policy owners. For those who didn’t purchase plans earlier, there are other options for ensuring some financial security for your future care.

Many retirement communities offer different levels of care—independent living, assisted living, and skilled nursing, also offer a life care plan, available to residents when they move into independent living. Life care community plans, like the one offered at Orchard Cove in Canton, are emerging as a successful alternative to long-term care insurance. To learn why, it’s important to understand how long-term care insurance works and why the product hasn’t delivered as the insurance industry expected.

Downsides of long-term care insurance 

Long-term care insurance is a relatively new product, introduced in the 1990s to help offset increasing costs for advanced elder care. Policy benefits and premiums were based on assumptions about customer behavior and business conditions that turned out to be faulty. The first was an overestimation by insurance actuaries about how many policyholders would drop the policy without ever using it. 

In the case of car or homeowner’s insurance, consumers don’t specifically plan on using it and hope that they never have to file a claim. Many people pay for those types of policies and then drop them when they don’t need them anymore, or switch companies for a better deal, never having drawn a benefit.

Long-term care insurance was not regarded in the same way by consumers. Many saw it as an investment— “I’m paying in and I plan to draw out,”—rather like their retirement accounts. This resulted in a much higher percentage of policyholders drawing benefits for larger amounts than projected. For consumers who purchased policies early, very few were interested in surrendering the policy at any point, and most were committed to the idea of filing claims against the policy in their old age.

The second faulty business assumption that impacts the long-term care insurance industry today relates to interest rates and investment returns. Over the past decade, relaxed monetary policies have led to significantly lower investment earnings on the premiums that were paid, which left less money to support benefit payments. 

Meanwhile, long-term care costs have increased significantly. The result is that insurance companies have less money to pay larger-than-expected payout costs. The only way to pay all of the benefits owed and stay solvent is to raise premium rates on policyholders. Many insurance companies have chosen to exit this line of business entirely and are no longer offering new policies in the market.

Life care plans: An alternative to long-term care insurance

How have life care plans at continuing care retirement communities, sometimes called life plan communities, avoided these pitfalls? At Orchard Cove, residents who qualify medically can choose to pay a one-time fee plus a monthly fee during their residency to lock in significantly reduced rates for higher levels of care when it’s needed. 

As a nonprofit provider of care, rather than a for-profit insurance company, Orchard Cove is able to offer a life care plan that covers more of the out-of-pocket costs associated with long-term care at a lower cost to residents since there is no need to pay shareholders or cover the operating costs of a separate insurance business.

Because Orchard Cove is part of an organization that has provided high-quality senior care for more than 25 years, future cost increases are more easily projected and managed. Residents who choose the life care plan limit their exposure to financial risks like rising premiums, lifetime caps, or unpredictable costs and coverage without having to plan decades in advance.

For seniors who didn’t jump on the long-term care insurance bandwagon years ago, life care plans at retirement communities like Orchard Cove remain an option and may end up being a better financial decision for you. So procrastinators, rejoice—it may all have worked out for the best!

Ready to explore a life care community in Canton?

Being a life care community is great, but what is the actual community like? Beyond just taking care of your health, Orchard Cove offers many other benefits. Plenty of life-long learning opportunities, exercise classes, and art programs, as well as peaceful walking trails, beautiful landscaping, and lots of amenities. Above all, it’s the people who make the community what it is - you’ll be surrounded by warm and inviting neighbors with a wide variety of hobbies and interests. Find out for yourself and check out our website or contact us directly for more information.