Long-term care insurance has not gained popularity among affluent investors, a trend unlikely to change as the industry faces an uncertain future.
The majority of affluent investors go without long-term care insurance, a situation that’s unlikely to change in light of recent industry trends.
“Poor results in the long-term care insurance sector have led many providers to exit the market, leaving its future uncertain,” Moody’s Investors Service said in a statement on Wednesday. “Despite the need for non-medical coverage by an aging population, persistent losses, a challenging operating environment and the exit of key players have made the product’s future uncertain as it currently stands.”
Long-term care insurance is a relatively new product, dating to the 1980s, said Laura Bazer, author of Moody’s Long-term Care Insurance: Sector Profile report, and many of the early policies offered benefits that were “often too generous.” Limited claims experience and long horizons made long-term care insurance difficult to price, and the ability to build benefit reserves has been constrained by prevailing low interest rates, she said.
Newer long-term care policies seek to reduce the risk to insurers by restricting benefits and payouts, Bazer said, but “potential buyers may balk at fewer benefits and higher rates, and sales could go down.” What’s more, Bazer said, five key providers have exited the long-term care insurance market since 2010, “thus the sustainability of current sales volumes, and indeed the viability of the market overall is now in question.”
Few affluent investors indicate they’re likely to buy long-term care insurance in 2012, according to a Millionaire Corner study completed in December of last year, and a minority has purchased the policies in the past. Ownership ranges from 28 percent among individuals with investable assets of $100,000 up to $1 million, to roughly 36 percent of investors with $1 million to more than $25 million. Investors who work closely with a financial advisor, however, are significantly more likely to own a long-term care policy.
Meanwhile, long-term care costs are rising faster than inflation, according to a report released last spring by the MetLife Mature Market Institute. Average rates for a private nursing home room rose 4.4 percent to $87,235 a year in 2011, and assisted living base rates rose by 5.6 percent to $41,724 a year, MetLife reported.
Investors who go without long-term care might be balking at the premiums, but they also could be reluctant to face difficult financial decisions surrounding aging and retirement, according to investor insights from the Financial Planning Association.