When a Long-Term Care Insurance Company Drops the Ball, What Should You Do?
What one client's long-term care decision taught me about separating two questions that look like one. If you're considering dropping your coverage, consider these three issues.
Recently, I sat across from a retired professor who wanted to cancel his long-term care policy.
He had reasons, some of them good ones.
His wife had needed care at home for the last stretch of her life. The policy paid, eventually. But every claim was a fight.
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- Paperwork came back rejected for reasons nobody at the company could explain
- Approvals that should have taken two weeks took two months
- He spent evenings on hold with a call center while she slept in the next room, and he did that for a long time
By the time it was over, he had a binder of correspondence and a permanent opinion about the name of the insurance company on the letterhead.
Then his own premium notice arrived. The increase was close to 9%.
He told me he was finished. He said he would rather pay for his own care out of pocket than send that company another dollar.
I did not argue with him.
What struck me was not whether he should keep the policy. It was that he was answering two different questions at once and did not seem to know it.
Let me explain why I did not argue, then what I asked him to consider instead.
Where he was right
He was not imagining the carrier problem. The stand-alone long-term care industry has been in slow structural failure for two decades. Insurers priced these policies badly in the 1980s and 1990s, mostly by assuming far more people would drop coverage than actually did. When the losses came, companies raised premiums or left.
By 2020, the number of carriers still writing traditional policies had fallen from more than a hundred to fewer than a dozen, and class actions followed over how the rate increases were disclosed.
When a client tells me his carrier fought him on a legitimate claim, I take it at face value. He lived it. I did not.
He was also right that most people never see the catastrophic scenario. Research prepared for the Department of Health and Human Services found that while roughly 70% of adults who reach age 65 develop serious care needs, only 24% receive more than two years of paid care. Most episodes are short, and many are handled entirely by family.
He had the money. He could have written the checks himself without changing how he lived. That matters, and I told him so.
None of it answered the question in front of him.
Two questions that look like one
Here is what I told him.
He was answering two questions at the same time, and they were not the same question.
The first is whether he trusted this insurance company. He'd answered that over two years of phone calls. Nothing I said was going to move him, and I was not going to try.
The second is whether the policy he owned still has value.
Those feel like one question because the same company is attached to both.
I wanted to be clear that conflating them is not a failure of reasoning. It's how people work. When an institution puts you through something difficult, the frustration attaches to everything connected to it.
- The premium notice
- The paperwork
- The contract itself
You stop seeing an asset and start seeing a relationship you want to leave.
But a contract doesn't lose value because the claims experience was miserable. The terms sit on the page, indifferent to how you feel about the company obligated to honor them.
I wasn't asking him to be less angry. The anger was earned. I was asking him to put it in the right column.
What he actually owned
His contract had a 5% compound inflation rider, purchased more than two decades ago and quietly compounding ever since. The benefit pool had grown past seven figures.
You can't buy that today. New pricing on 5% compound is so high that almost nobody takes it, and lifetime benefit periods have largely disappeared along with it. The feature that made his policy valuable is effectively extinct in the current market.
Now put that against what care costs here. A semiprivate nursing home room in Connecticut runs roughly $182,500 a year, against a national median closer to $115,000. We're one of the most expensive states in the country for this.
He was comparing that number to home care and concluding, correctly, that home care is cheaper. But the home care figures everyone quotes are built on 40 hours a week. That is eight hours a day, five days a week. No nights. No weekends.
The comparison holds right up until someone needs care around the clock, which is exactly the scenario insurance exists for.
Medicare doesn't fill the gap. It covers short-term skilled nursing after a qualifying hospital stay. It does not cover custodial care, which is the help with bathing, dressing and eating that most people need. Medicaid covers it only after assets are nearly gone.
The real question was never whether he liked the company. It was whether he wanted the cost of care, if it came, to come out of his estate or out of a contract he already owned and for which he had already paid.
The door doesn't reopen
Canceling a long-term care policy is a one-way decision. At his age, with his health history, there is no replacement product to buy. If he changed his mind in three years, there would be nothing available.
A decision you can reverse and a decision you can't aren't the same kind of decision, even when the math looks identical.
That asymmetry deserves real weight in the analysis, and it almost never gets any. We evaluate the annual premium against the annual benefit and treat it as a math problem.
It's not only a math problem. It's a question about which mistakes you can survive making.
There is a sobering finding here. A study in the Journal of Risk and Insurance found that roughly a quarter of people who buy a policy at 65 let it lapse before they die, forfeiting everything they paid. The authors found no evidence this was strategic. Lapse rates were meaningfully higher among people with cognitive impairment.
Read that again. The decision to drop coverage often gets made right when someone's judgment is starting to thin, by the person least equipped to see what's coming.
That did not describe my client. He was sharp, and his reasoning was clear. But it's a reason to make this decision deliberately, in writing, with someone else in the room.
When canceling is the right call
I'm not arguing that everyone should keep every policy.
Fewer than 8% of adults 60 and older owned a stand-alone long-term care policy as of 2022. The overwhelming majority of American families handle this without insurance, and many handle it fine.
Self-insuring is a legitimate strategy. If you have the assets, the liquidity and a genuine willingness to spend them on your own care rather than preserve them, paying out of pocket can be perfectly sound. It avoids claims disputes entirely and gives you complete control of what care you buy and from whom.
The honest test is not whether you're angry at the carrier. It's whether the plan survives being written down.
- What is the actual number, at today's costs, inflated forward 20 years?
- Where does it come from, and what does selling that asset do to everything else?
- Who administers it if you can't?
- What happens to a surviving spouse's plan if the first spouse's care consumes the portfolio?
If those questions have good answers, cancel the policy. That's a real decision, made on the merits.
Talk to your family first
I asked him to do one more thing before deciding, and I ask nearly everyone in this position to do it.
Talk to your children before you cancel. Not because the decision is theirs. It's not. It's your money and your care.
But a long-term care decision doesn't stop at the person making it. It lands on whoever coordinates the care, takes the calls and decides what gets sold and when.
They might know something about the shape of the next 15 years for which you haven't accounted. They might have obligations of their own that change what they can absorb. They might simply want to be told.
I've watched families handle this well and watched families handle it badly. The difference is almost never the size of the portfolio. It's whether the conversation happened before the crisis or during it.
What I wanted for him
He made his own decision in the end, and I supported it. That is the job.
What I wanted was for the decision to rest on the economics and the planning, not on a grievance he had every right to hold.
The grievance was real. It simply answered a different question.
Most of the hard choices in retirement have this shape. Somewhere underneath the noise, there's a question you can answer, and the work is separating it from the one you answered a long time ago and have been re-answering ever since.
Related Content
- What You Need to Know About Long-Term Care Before You Need It
- How to Pay for Long-Term Care
- A Financial Professional's Take on Long-Term Care Insurance: Buy or Not?
- If Not Long-Term Care Insurance, Then What?
- Long-Term Care Insurance Alternatives: How to Craft a Flexible Plan to Help Cover Future Health Needs
