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My Two Cents

Long-term care insurance–Not?

Chris Farrell Dec 3, 2008

The case for long-term care insurance is compelling. It’s the product that is difficult to understand and evaluate. Now, the question is whether the policy will be there when needed. According to today’s Wall Street Journal:

A major insurer has dumped a chunk of its long-term-care policies into an independent trust, putting tens of thousands of policyholders at risk of reduced benefits or big premium increases.

Conseco Inc. officials have said the transfer of many of the insurers’ long-term care policies to a new state-supervised nonprofit trust, Senior Health Insurance Co. of Pennsylvania, allows it to concentrate on its core businesses. The policies were a drag on the company’s earnings because they were underpriced and required continuing capital infusions to meet the long-term needs of policyholders.

The trust will pay claims from a pool of funds transferred to it from Conseco, including $175 million in capital. But A.M. Best Co., the insurance-rating firm, warns that the trust may need to raise rates and reduce benefits and has no access to additional capital. If the trust were to become insolvent, some policyholders might ultimately have to rely on the Pennsylvania state guaranty association to pay any claims, up to limits set by state laws, other experts said.

Yes, these are troubled policies written a while ago, and there have been industry improvements in the meantime. And it looks like this solution was making the best of a bad situation, and there is still some value there. Still, some 8 million Americans own long-term care policies. long-term care insurance is expensive and complicated. Yet it’s a product people need when they are frail and vulnerable. The article notes:

The Conseco action comes at a time of growing concerns about whether many long-term-care policies will pay off when needed, or will require drastic premium increases. Now, the industry’s underpricing woes are being exacerbated by the financial crisis. Insurance-company investments have done poorly, and in some instances the insurers are having trouble raising more capital to meet the reserve and capital demands of state regulators

Everyone knows that this is an insurance product to research very carefully before buying. But that counsel is more important than ever.

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