Long-term-care insurance gets a boost, but there’s more to do

Among the possible costs that must be factored into retirement planning is that of long-term care. Research shows that as Americans get older, 70% will need some form of assistance, which can range from help at home with the activities of daily living to a nursing home stay.

That assistance isn’t cheap. And Medicare only covers short stays at a nursing home.

The insurance industry came up with a solution for this risk: long-term-care insurance, which covers the cost of home health care as well as nursing home stays. But the product came under fire when insurers repeatedly hiked premiums on policies, often substantially — a situation that reflected companies’ errors in pricing the policies initially as well as adamantly low interest rates.

Policies got so expensive that some people let them lapse. And the tales of spiraling costs discouraged others from purchasing policies.

(More: New ways to estimate and fund long-term-care costs)

Regulators to the rescue. In 2000, the National Association of Insurance Commissioners came up with a rule requiring insurance companies to price new policies more conservatively, and 41 states have adopted the rule.

That effort seems to be working. As InvestmentNews reporter Greg Iacurci reported last week, tracking by insurance agency LTC Shop shows policies issued under that rule have seen an average cumulative rate increase of 31% since 2001, versus 55% for policies not covered by the rule. Policies issued under the rule also show a lower median increase of 20%, versus 46% for other policies.

Kudos to the NAIC and state regulators, who have made long-term-care policies safer for consumers — a development that can ease your clients’ retirement planning.

Of course, LTC insurance isn’t the solution for all families, and therefore much more is needed to tackle the crisis of elder-care costs bankrupting even some of those who have saved a lifetime for retirement.