What Is Long Term Care Insurance, and How Has It Changed?

Three of the most feared, avoided, and misunderstood words comprise one single phrase: LONG TERM CARE.

Long term care is defined simply as assistance with activities of daily living, such as:

    • Bathing
    • Eating
    • Dressing
    • Using the toilet
    • Moving from place to place
    • Continence
    • Cognitive impairment


Long Term Care has often meant individuals fending for themselves, unfortunately. Or just as often, it’s left to state Medicaid programs to try to fund (which they often cannot do). 

For instance, 96% of all Long Term Care is custodial in nature — meaning it is purely standby assistance. Medicare, unfortunately, covers zero percent of the custodial aspects of Long Term Care.

How Long Term Care Insurance Has Evolved

In the 1990’s and into the early 2000’s, the insurance industry made a significant move toward helping Americans with Long Term Care (LTC) services needed for family members. The Federal Government also came out with policies (underwritten by John Hancock and MetLife) further validating the need and reason to insure.

Policies were made available for people to unload some of the potential indirect costs of care, with variables such as:

  • Daily/monthly benefit amounts
  • Lengths of benefits
  • How long to wait before benefits are paid during a claim
  • Inflation protection


Millions of premium dollars were written over a 10-15 year period from that point. But then, rather suddenly, the new policy sales halted. Eventually, many of the big providers in the industry left the business.

By 2010, those names included major carriers like John Hancock, MetLife, GE Capital, CNA, Unum, and Prudential. Most still will service claims for existing policyholders (those who had purchased policies before that point), but the general public were left with a major void of available options — and even fewer insurance agents to help guide the public.

What Caused Such A Decline In Long Term Care Insurance?

Long term care Insurance is not like life insurance, which uses mortality tables to determine life expectancy to create fixed price term or permanent life insurance policies (with clearly defined pricing).

Instead, long term care Insurance depends so heavily on conditions of various health issues that there is no accurate tool that actuaries have found to appropriately create pricing. 

In a similar comparison, with disability insurance we have finite benefit payout periods based on working age adults. Long term care policies have no fixed pricing models, and those with existing policies have seen their prices increase by 10% to 100% since purchasing the policies.

Here are a few reasons why long term care insurance missed the mark:

  • All long term care insurance carriers underestimated the numbers of people who would make claims on their policies
  • They also underestimated how long benefits would need to be paid out.
  • All carriers who issued unlimited/lifetime benefit periods began to see rising claims with Alzheimer’s situations, averaging 8 ½ years or longer.
  • Carriers also made assumptions about how many policyholders would end up dropping their policies, and in reality far fewer of them actually did. Had the carriers been correct this would have removed a lot of risk from their portfolios, but their mistake instead created a lot of risk.


The result was that most carriers left the traditional market, no longer seeing it as viable.

The main alternatives that cropped up were hybrid policies that offered life insurance with access to long term care benefits, rather than long term care insurance as a standalone policy.

What Happens If We Pay Premiums for Long Term Care Insurance and Never Use the Benefits?

This is a common question regarding long term care insurance.

With the life insurance plans, someone will get those premium dollars back: either the insured via accelerated death benefit for long term care, or the beneficiary of the life insurance.

However, these plans are often still very expensive and more than the traditional LTC insurance costs. This is true even despite the increased premiums for new purchasers.

Stay tuned for our next blog on how to pay long term care insurance premiums using 1997 Tax Legislation that allows businesses and owners to deduct some or all of the costs.

Danny Mensh

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