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A Quarter of Seniors Let Insurance Lapse

One in four seniors over the age of 65 will let their long-term insurance lapse. Whether it is poor decision making, cognitive decline, or simply an economic burden, seniors are not renewing insurance despite being at the age where they need it most.

A study by the Center for Retirement Research at Boston College found that men over the age of 65 with long-term care insurance have a 27 percent chance of lapsing prior to death while women have a 29 percent chance. This forfeits all long-term care benefits gained from the insurance.

The study assumed there were three reasons for lapsing. First, the burden of premiums. Second, a strategic lapse of insurance balanced against the price of care – though the researchers admitted this was not likely. Finally, cognitive decline leading to poor decision-making skills.

Analysis found that low-wealth and low-income individuals were indeed more likely to let insurance lapse, giving credibility to the theory of premiums being a burden. There was no evidence showing seniors strategically lapsed insurance. Most importantly, however, the study found that chances of lapsing are highest among the cognitively impaired, which could lead to poor financial decisions. This alone increased chances of lapsing by 3.4 percent. Because they are most at-risk and in need of care, the consequences are significant. Analysis also indicates that those who lapse are more likely to need insurance than those who do not.

Having a grown child also helps with lapses, as they are able to make better choices without an cognitive decline. They can remind individuals of the value they originally saw in taking out insurance. Having an adult daughter, the study shows, reduces the risk of lapsing by 14.3 percent – not insignificant. Having a partner or being married reduces the risk by 4.8 percent.

The annual 2016 Genworth study comparing median long-term care costs, conducted by CareScout, revealed that the national median of adult day care costs is $1,473 per month; a home health aide is $3,861; an assisted living facility charges $3,628; a semi-private room at a nursing facility is $6,844; and a private room is $7,698. All of these medians have seen a five-year growth. Ten-year projections see as growth as well, from as little as about $500 more per month for adult day care to nearly $3,000 more per month for either type of nursing home care.

While only 20-30 percent of single individuals who buy insurance will end up needing insurance for care services, only 13 percent of individuals over the age of 65 actually have long-term care insurance. Between 7 and 17 percent of those needing insurance for care will have to pay the full price out-of-pocket without any help from insurance. Time magazine suggests that you get insurance if you are worth between $200,000 and $2 million – enough that you have enough wealth worth protecting against care costs, but not so much that you could easily afford the care.

If you are over 60, on a budget, and don’t have term insurance, be sure to shop around to get the best deal – even $5 a month will make a difference over time.