Genworth Financial Inc (GNW), Metlife Inc (MET): Is Long-Term Care Insurance Just a Ripoff?

Bait and switch?
For existing policyholders, the main problem is one of sunk costs. Insurance agents typically advise people to obtain long-term care insurance as early as possible to reduce costs, as premiums are much lower for younger policyholders who are less likely to need benefits in the immediate future. What that means, though, is that those who’ve held onto their policies a long time have already paid tens or even hundreds of thousands of dollars in policy premiums without having gotten a dime in benefits to show for it.

Now, to avoid losing their coverage, these long-time policyholders have to find hundreds of dollars to cover extra premium payments each month. For many retirees living on a fixed income and already facing substantial price increases for other basic living expenses, that will prove an impossible task, and they will have to accept lower benefits or even give up their policies entirely — thereby having essentially wasted all the money they’ve spent on premiums for years.

What should you do?
Policyholders now face some tough decisions. Retaining full coverage will cost a lot more, so some insurance providers are offering less extensive benefits as a replacement. As painful as accepting reduced benefits might be, it could prove to be a better option than simply allowing coverage to lapse entirely.

Unfortunately, the economics of long-term care make it likely that price pressures on policies will continue. For those considering buying long-term care insurance now, it’s essential to read long insurance-policy documents carefully so that you’ll know in advance about provisions that could send your premiums skyrocketing in the future.

The article Is Long-Term Care Insurance Just a Ripoff? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned.

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