An interesting American trend may have lessons for the UK when considering whether insurance is or is not one of the answers to our long-term care problem.
Consumers are increasingly buying shorter-duration insurance policies as a remedy for making long-term care insurance an option. 2009 highlights the trend nicely. That year 32% of individual consumers purchasing a long-term care policy opted for a three-year benefit window, according to a report published by the American Association for Long-term Care Insurance.
The argument, that is not making US insurers happy, is that with modern ways of living, more care at home and technology, people do not need to be in a care home for year after year.
According to a consumer’s guide published by the industry trade association, the risk of running on empty as far as benefits are concerned is small, especially for men. For those purchasing policies longer than three years who made a claim for long-term care, only 13.1% required that care for 3+ years. Only 7.6% of those with a policy that paid out 4+ years actually required care longer than four years and a mere 4.5% of those buying policies with a payout window of 5+years needed care beyond that threshold. Men with a three-year policy who begin a long-term care claim at age 82 have a 12.4% probability of exhausting their benefits, compared to almost twice that number for women.
The research is showing that the cost savings is substantial as fewer people are buying unlimited long-term care policies. There is a risk, as if you do happen to be one of those individuals whose claim extends beyond the actual number of years stated in your policy, you could expect to need care for several additional years. Even a year of actually needing long-term care but facing such a necessity without coverage in place can be devastating to both lives and legacies.
Perhaps government and insurers should do some work here to find out the average length of stay in care homes that people actually need. They can then design policies based on this, and design an excess cover for the small number who exceed the majority. It is a simple matter of mathematics, statistics and using the insurance and risk techniques that every risk manager uses day in day out.