Readers opine about rising premiums and the pros and cons of self-insuring.
By Christine Benz | 03-20-11 | 06:00 AM | Email Article

Few financial-planning issues are more confusing and fraught with emotion than the decision about whether to purchase long-term care insurance.

Christine Benz is Morningstar's director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. Follow Christine on Twitter: @christine_benz.

Like all types of insurance, your need for this type of coverage is unknowable; you're insuring yourself against a risk, not a certainty. Insurance companies haven't helped matters. With many pushing through steep premium increases and denying claims to certain policyholders, purchasers and would-be purchasers of this coverage have had good reason to question the value proposition of a long-term care policy.

At the same time, an extended need for long-term care can also gobble up an investor's nest egg and then some. Specific tallies vary by geography, but the cost of a private room in a nursing home averaged more than $200 a day--or roughly $75,000 a year--in 2009, according to the National Clearinghouse for Long-Term Care Information, a website produced by the U.S. Department of Health and Human Services. (Costs may run even higher in high-cost urban centers.) Even those who need a relatively limited level of care--such as a visit from a home health aide three days a week--could pay $18,000 a year for that type of help.

My recent sampling of users' opinions, drawn from a recent thread in the Investing During Retirement forum of, illustrates the broad divergences of opinion on this important topic. While some users have purchased this type of coverage and never looked back, others are skeptical, citing shady insurance company practices as well as their own ability to self-insure as key reasons to go without the coverage.

Rising Premiums, Denied Coverage Are Key Worries
Many posters cited premium increases and the chance that an insurance company might deny a claim as key reasons for avoiding long-term care coverage. Poster ColonelDan is among those who won't be purchasing long-term care coverage, noting, "[I've seen] far too many horror stories of many years paying ever increasing premiums; then, when it's needed, many costs aren't covered. It's very convenient for the insurer, but bordering on the 'scam' category in my view."

Poster Lonnie aptly likened the potential for rising premiums on a long-term care policy to a variable-rate mortgage: "Right now it seems a lot like buying a variable-rate mortgage. The costs go up in an unpredictable manner so it is impossible to figure out how much it will cost in future years. The insurance industry has yet to figure out how to price the long-term care insurance product appropriately. This is likely a 'sub-problem' within the unpredictably rising health-care cost issue. That issue does not seem like it is being solved, and the long-term care insurance cost problem is not going to be solved until then."

Punter76 also finds the prospect of rising premiums worrisome: "Would you buy life insurance from a company if you thought the company would keep the premiums reasonable for 20 years and then start increasing the premium by 40% or 50% per year after that, based on its exposure? As I understand it, an insurance company has that right with long-term care. I declined long-term care insurance. The reason for insurance is to have the insurance company assume a risk."

Poster Stupidone shared the following experience: "We purchased it about 10 years ago on an exceptionally good offer sponsored by the local teachers' association. Within a year, the 'too good to be true' was!. The company announced very steep rate hikes. Since we felt we had enough savings to go it alone, we canceled the insurance as a bad bargain."

In addition to worries over rate hikes, other posters cited concerns that the coverage might not be there when they needed it.

Dtconroe shared just such a story with his post: "My wife and I have chosen to not purchase long-term insurance. Our recent experience with her father and mother both passing away has raised doubts about long-term insurance. Her mother had long-term care insurance, and I consider the insurance company as unethical, refusing to acknowledge a sudden ovarian cancer, and refusing to cover her needs during a relatively rapid decline in health. I know that long-term care insurance makes sense in theory, but I have determined that insurance companies will sabotage the policy and basically do everything possible before permitting any use of the policy--so what is the point?"

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Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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