Long-Term Care Coverage Crumbling

Fewer consumers are purchasing long-term care insurance, as annual sales are only about one-third of what they were a decade ago.  Nevertheless, those who are still buying are purchasing less coverage than usual, even though long-term care costs are rising. 

When industry leader Genworth Financial Inc. released its quarterly financial statement last week, they described an important trend: Remaining buyers are scaling back the protection they do purchase.  Buyers of Genworth’s newest policies (PC Flex III) are purchasing insurance that averages $137 per day for 3.4 years.  This is significantly less than some older policies.

An industry wide survey published last July by Broker World magazine reported that sales of 3-year policies increased from 23.6 percent in 2007 to 35.3 percent in 2013.  Contrastingly, sales of five-year policies plummeted from 18.9 percent to 13.5 percent.  Sales of lifetime policies fell from 5.7 percent to just 3.6 percent. 

The biggest change is what has happened to inflation protection.  In 2007, nearly half of all LTC insurance buyers purchased 5 percent compound inflation riders.  By 2013, only about 22 percent did.  At the same time, about 30 percent bought 3 percent compound inflation protection up from about 9 percent in 2010. 

This change in consumer behavior is likely caused by rapidly rising premiums and the price difference in inflation protection.  Some industry analysts argue that many consumers are over-insured and that buying less generous coverage makes good financial sense. 

See Howard Gleckman, Consumers are Buying Less Long-Term Care Insurance Coverage, Forbes, Feb. 20, 2015.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.