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Why people will not buy long-term care insurance

long term care

Every day there seems a new report, comment, figure or suggestion on how we as a country can pay for the long-term care of people when they get too frail to look after themselves.


The insurance industry saw a potential gold mine a few years ago, with lots of revenue and many customers dying before they needed an insurance payout. But it was just fools gold as few people bought insurance and most insurers lost money on the deal.


Lots of alternatives are suggested from the one extreme of no insurance and the government to pay for everything, to the other of no government care and everyone to have compulsory long-term care insurance. Guess which side the insurance industry takes.


The real problem with long-term care is not funding or product design, but that it is asking for people to buy something they may not need. There are fewer people being cared for in care homes and more at home, and as technology advances, the electronics groups involved in healthcare argue that remote monitoring will soon be able to do what personal visits do now. Also, we are all living longer and being healthier; so many fit people will not need care at all. Those that do would much rather be cared for at home than in a home.


Government and the insurance industry has got a mind-set of care in care homes and until both get their head out of the sand and talk to people like Phillips, they will be trying to design something for the wrong people in the wrong place at the wrong time.


Long-term care is a long lasting insurance, the idea being that you take it out when 30 or 40 and keep it going until you need it at 80 or 90.The vast majority of insurers who sold long-term care insurance are no longer in business. So why should customers buy cover from a company that when payouts are needed, may be long gone? The track record of closed account life insurers on paying out is pretty dismal.


Some interesting information comes from the US. A growing number of people are aware they may face steep nursing-home and other long-term-care costs as they age, but few are willing to purchase long-term-care insurance, according to a new survey of California residents. More consumers than ever are aware of the potential problem, but fewer than ever are buying insurance.


A US report on long-term care insurance explains why:


  • 59% said long-term-care policies cost too much

  • 55% said they haven’t thought about it

  • 32% said their family assets and income will cover the cost.

  • 29% do not trust insurance companies to cover the costs incurred.


Fears that an insurance company may go out of business, and worries about premium hikes, keep people from buying policies — and those fears are justified by recent US experience.


Insurers and their trade body seem to be delighting in the detail of cost, price, product design - but they may as well close down all the committees and discussion groups unless they can answer these questions:


  • Will the cover be there in 10/20/30/40 years time when the consumer needs it?

  • Will the insurance company be there in 10/20/30/40 years time when the consumer needs it?

  • How will it guarantee to cover all the long-term care costs?


Personally, unless the government makes insurance compulsory, I cannot see insurers doing anything useful.


Motor insurance is compulsory but as many as one in five drivers have no insurance, so how on earth can you ever enforce compulsory LTC  insurance?

Long-term care insurance hot topic: October 2011

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