Hurricanes and health care storms: Insure yourself

As Tropical Storm Isaac - maybe Hurricane Isaac in a few hours - comes barreling toward Florida, I bet you're feeling pretty good about shelling out for those pesky wind and flood insurance premiums all year long. 

Paying out for something you hope never to collect on is never fun - especially if it's expensive. That's one of the reasons many middle class people have been resistant to purchasing long-term care insurance. (I am referring to individual long-term care insurance policies, not group policies offered by employers.) Nonetheless, a long nursing home stay is a real possibility for anyone who lives long enough. In an August 21 Motley Fool article, writer Nick Seghetti  compares the average person's odds of requiring long-term care to the odds of other potential calamities:

• Chance that the person's home will burn to the ground: 1 in 16,000 
• Chance that the person will total his car: 1 in 100
• Chance that the person will need long-term care: 1 in 2 for females, 1 in 3 for males (I'll get to the gender difference in a moment.)

But the blame for lack of long-term care coverage does not rest solely on the shoulders of the balking public.  Premiums are expensive, and have gotten more so as companies have found themselves paying out more in claims and taking in less from investments than originally projected. According to the American Association for Long-Term Care Insurance, premiums for new policies have risen 30% to 50% over the last five years for those ages 55 to 65, and from 6% to 17% in the last year alone. As insurance companies hedge their bets, it has also become more difficult for applicants to pass the qualifying physical. And many companies, including giants Prudential and Metlife, have fled the market altogether (although they must still honor existing policies). 

Despite these industry troubles, I still encourage all my clients who are not able to self-insure, and who can handle the premiums and pass the physical, to purchase a long-term care policy. Without it, they will either need to rely on their families - something no one wants to do-  or decimate their nest egg until they can qualify for Medicaid benefits; or try to secure Florida Medicaid benefits before everything is gone. If you are among the many Baby Boomers getting up in years, you are well-advised to look into buying a policy when you are still relatively young and insurable, and premiums are reasonable. 

Which brings me back to that gender gap I referred to a moment ago. Women are far more likely than men to require long-term care as a result of a chronic disability such as Alzheimer's Disease, given their longer life spans. Despite this actuarial data, insurance companies do not factor in gender when setting premiums. In other words, women at present are getting more bang for their buck when they buy long-term care insurance, because they are more likely to file a claim in the future. The American Association for Long-Term Care Insurance notes that in 2011, 65% of all claims were for women. The bottom line: if you're a Baby Boomer getting up in years, and particularly if you're female, take a look at long-term care insurance policies. 

Just like you never hope to collect on your hurricane insurance, let's hope you never have to collect on your long-term care insurance, either. But in both cases, you buy yourself a lot of peace of mind.