The people who need long-term care insurance the most are the most likely to stop paying the premiums on their policies, according to a new report by the Center for Retirement Research at Boston College.
The cost of long-term care is one of the biggest risks to a financially secure retirement. One of the biggest medical expenses—and one of the most unpredictable—for retirees is a nursing home stay, which can easily run more than $50,000 a year.
Purchasing long-term care insurance can help, but it’s not necessarily the best move for everyone, and at more than $2,000 a year it’s not cheap. It’s also only works if you keep paying the premiums for it, but a third of those who purchase long-term care insurance let their policies lapse.
The report finds that poor and low-income consumers are more likely to let their policies lapse, as are those who are cognitively impaired. The consequences of doing so are twofold: Former policy holders will not only have to find the money to pay for long-term care if they need it, but they've also essentially wasted the money they did spend paying premiums in previous years.
Researchers say that one way to prevent consumers from letting their policies lapse would be to collect premiums in a lump sum.
That could be a hard sell, for both the insurance industry, which would have to give up the future right to raise premiums, and the consumer who may not want to tie up such a large chunk of cash.