Long Term Care
September 2020

Long-term care insurance is an insurance product that helps pay for the costs associated with long-term care. Typically, an individual requiring long-term care is unable to perform two of the six activities of daily living (“ADL”): dressing, bathing, eating, toileting, continence, transferring (getting in and out of a bed or chair), and walking. The need for long-term care is increasing because people are living longer and as they age, they often need help with ADLs or require supervision due to severe cognitive impairment. Long-term care insurance is primarily a product aimed at the “mass affluent” market. Individuals and families with limited financial resources are unable to afford long-term care insurance and wealthy individuals and families have the resources to self-insure the risk of needing care. In addition to providing resources for long-term care costs, these policies also are used to preserve family assets so they can be passed to heirs. Long-term care insurance was first introduced in the late 1970s and without a history of claims experience to draw from when it was introduced, actuaries were forced to price policies based solely on a variety of assumptions. Not surprisingly, these assumptions proved inaccurate. Three assumptions in particular were especially off target: 1) That a significant percentage of long-term care insurance buyers, like buyers of permanent life insurance, would allow their policies to lapse. 2) That the growth of healthcare costs would remain modest. 3) That the insurance companies underwriting long-term care policies would continue to enjoy attractive investment returns on their predominantly fixed-income investment portfolios. By the 2000s, it was clear that the faulty assumptions listed above, along with others, threatened the solvency of many long-term care insurers. Several exited the line of business altogether and others passed along massive rate increases to their policy holders. The increases were so large that many insureds that had paid for their policies for decades suddenly found themselves unable to afford their revised premium payments and were forced to choose between dropping their policies (sometimes with a return of premiums paid) or accepting less generous benefits. This experience has tarnished the reputation of the long-term care insurance industry and sadly, the industry continues to struggle with the dynamics of longer life expectancies, lower portfolio investment returns and skyrocketing health care costs. The industry also suffers from a less than stellar record of approving claims. Claimants commonly complain that insurers can find a reason – any reason – to deny a claim. And, to add insult to injury, many long-term experts believe that premium increases north of 30% every 7-10 years should be incorporated into a long-term care buyers’ expectations. (State insurance commissioners must approve price increases and insurance companies prefer to avoid passing along price increases to their insureds frequently.) This confluence of factors makes the evaluation of long-term care insurance fraught with challenges and the purchase of it difficult to recommend to prospective buyers. In many cases, the need for coverage is clear, but at what cost? Finally, long-term care insurance arguably is not designed correctly. Most policies that are in force provide coverage for a period of years, usually two to five, following a 90-day waiting period. But the real financial risk of long-term care often is not a need for care for approximately three years, but instead, is one where the need for care is extremely long – perhaps up to 10 years. Few “mass affluent” families can afford a policy with a coverage period this long, but policies with a multi-year waiting period, combined with a long coverage period, do not exist because multi-year waiting periods are prohibited from being sold. The takeaway on long-term care insurance, therefore, is that while the need for it is growing, the risks associated with buying it are considerable and require careful analysis. IMPORTANT DISCLOSURE INFORMATION Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Pathway Financial Advisors, LLC-“Pathway”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Pathway. Please remember that if you are a Pathway client, it remains your responsibility to advise Pathway, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Pathway is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Pathway’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Pathway does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Pathway’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

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Long Term Care
September 2020

Financial planning for life

Your best interests. Our first priority.

Our sole purpose is to be your trusted advisor.

We work with our clients to identify opportunities, limit financial risks, minimize tax liabilities, and plan a lifetime financial strategy.

We work out of offices in...

Fee-only, individualized service suits our diverse clientele.

Find resources for...

Long Term Care September 2020

Long Term Care
September 2020