Long-Term Care Insurance Industry Experiencing Chaos

Reader Question:  My husband and I are 61 years old and I just retired last month.  We are interested in the Long-Term Care (LTC) policies that include an insurance death benefit if you don’t use it for LTC.  No one in either of our families has used LTC and we are still quite healthy.  My husband takes blood pressure medicine but it has been under control for several years.  I do not have any medical problems.  So I feel it is somewhat unlikely that we will ever use LTC so the life insurance payout is very interesting.  L.O. 

Answer:  Over the past several years, the long-term care insurance business has experienced a crisis of sorts.  According to Babs Hart, an expert in this area, “The LTC industry has not fared well over the last ten plus years due to the rising healthcare costs for aging Baby Boomers.  As a result many companies have exited the business while others have elected to significantly raise premium rates on both existing policyholders and new policies.” 

If you own a long-term care policy you have likely seen your rates rise and this is a trend that I expect will continue in the years ahead as medical costs continue to rise.  Insurance companies have also introduced innovative products including policies that combine life insurance with LTC benefits.  Unlike traditional LTC the insurance company cannot raise the rates on these contracts. In essence any LTC benefits paid to you from the policy are deducted from the death benefit. Depending on when and how much LTC benefits you use, the offset against the death benefits may be less than a dollar-for-dollar offset.  In other words, these are complex contracts and you’ll need the advice of an experienced professional to guide you. 

Reader Question:  I am a new college graduate who had the good fortune of getting a job right out of college. What is the best way for me to learn about investing? Also, where do you suggest I start my investment program? A.T. 

Answer:  First, congratulations on both getting a great job and on seeking knowledge about investing.  If you’ll begin investing a minimum of 10% from your very first paycheck, you’ll have established a habit that will set you on the road to becoming financially independent!  There are so many great resources about investing, I’m not sure where to begin.  Ultimately the very best way to learn about investing is to actually start investing!  There’s nothing like having a little ‘skin in the game’ to sharpen your focus.  One resource I like is www.TDAmeritrade.com.  First, their web site has good articles about investing for the novice investor.  But what I really like is they allow you to open an investment account with no minimum investment required and allow you to automatically add to your investment account each month with no minimums.  I had students do this in a recent class I’m teaching and to get started, I recommended they invest in a mutual fund that replicates the stocks in the S&P 500 Index, which is a basket of five hundred large U.S. companies.  The symbol for this fund is SVSPX.  Good luck! 

Reader Question:  I will be 66 next year and eligible for full Social Security retirement benefits and I’m trying to decide if I should begin my benefit or wait until age seventy and receive the higher monthly payout.   I plan to continue to work and I’d use the extra money to either invest or pay down on my mortgage.  Should I begin my benefit at age sixty-six (approximately $2,000 per month) or wait until age seventy to get an increase of $200-$300 per month?  D. 

Answer:  If you choose to delay taking Social Security until age seventy, your benefit will rise eight percent per year.  According to my calculations, the increase would be more like $700 per month rather than the $300 per month you are suggesting.  The best answer to your question involves many personal factors.  For example, if you are in poor health, typically you should begin taking benefits as early as possible.  If you are married, the health of your spouse is also a factor.  Remember, a spouse receives the higher of his or her own benefit or one-half of his or her spouse’s benefit.  Then at death, the lower-earner spouse steps up to the full benefit of the higher-earner spouse.  As one example, because he was continuing to work and didn’t need his Social Security, my father chose to wait until age seventy to begin benefits.  Today, he’s ninety-five (and still working!) so he’s received those higher benefits plus all of the cost-of-living raises for twenty-five years!  He likes to say that Social Security has been one of his best investments!