In New Jersey, Insurance Companies Pulling Out of Long-Term Care Business

My wife laughs politely as I refer to our local paper, The Trenton Times, as “the local fish wrapper” – even though I’ve made that joke hundreds of times. Occasionally, I find an article of interest and I can’t help but link to it. Padding back into the house after bringing in the Sunday paper, I found this article below the fold about how insurance companies are pulling out of the long-term care business.

Insurance companies are in the business of making money, which often is in direct conflict with paying out money on policies. As people live longer, and as the cost of long-term care increases exponentially, insurance companies are finding the long-term care insurance business….well, not profitable.

Prudential, the latest company to withdraw from the individual policy market and based in Newark, NJ, stated that it will continue to sell group policies. However, the writing is on the wall – it’s getting harder and harder to make long-term care policies profitable for insurance companies.

That means two things to me (and my clients). First, with the ever-increasing costs of long-term care, owning a long-term care policy looks like a great investment, assuming the company is still in business when you go to collect on the policy. (Disclaimer, I’m not a financial advisor and I’m not actually giving investment advice.)

Second, long-term care insurance has moved out of the realm of “insurance” and into cost-shifting. Listen, I’m not in love with insurance companies, but the concept behind insurance is that policyholders were putting down a little money to insure against an event that was not likely to occur (but which if it did, would have devastating financial consequences). Insurance companies made money based on the fact that these events were so unlikely. At one time, the prospect of needing long-term care was an unlikely event. However, one of the consequences of better medical care is that people are living longer, with the help of assisted living facilities and nursing homes (which, when needed, meet the requirements of paying out on the long-term care policy). So, it shouldn’t be surprising that companies are getting out of the business.

For years, I have advised clients that in conjunction with legal planning, long-term care insurance was a great idea — if they were young enough, healthy enough, insurable enough. Now it seems that option will soon disappear. That means advance legal planning is no longer optional, but mandatory, if you don’t want your family finances wrecked by long-term care expenses.

Posted by Victor Medina, Medina Law Group & The New Jersey Estate Planning Center