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It's never been harder to get ready to retire. Between ailing employer pension plans, the long-term problems with Social Security, and a stock market that hasn't exactly cooperated so far this millennium in providing consistent strong returns, many people have simply given up on thinking that they'll ever be financially secure once they retire.
The right planning can go a long way toward overcoming those obstacles and letting you retire comfortably. But now, insurance companies are taking away a valuable tool that many people used to try to control one of the biggest risks during your retirement years: health-care costs.
Getting what you need
One of the most expensive costs you'll face in retirement is paying for health care. Especially for those who need skilled nursing care, Medicare offers very limited coverage, and the big monthly expenses can rapidly eat away at your retirement savings. Yet setting aside enough money to cover those potential expenses, which in some places can add up to $100,000 per year, is nearly impossible for most people.
For many, long-term care insurance has been the answer. Long-term care policies pay benefits that help cover a range of different health-care expenses. Historically, nursing home expenses have been covered nearly from the beginning. But as the industry evolved, long-term care policies expanded to cover alternatives such as home health-care providers and other measures that involve somewhat less extensive services than a nursing home.
Bowing out of long-term care
Unfortunately, many of the insurance companies that offer long-term care insurance to individuals have chosen to abandon the market and stop selling new policies. The latest was Prudential (NYSE: PRU ) , which said that it will stop taking applications for individual long-term care policies at the end of this month.
Prudential isn't the first to take that dramatic step. MetLife (NYSE: MET ) did the same thing more than a year ago, and Unum Group (NYSE: UNM ) decided recently that it would stop offering employer group long-term care coverage.
Alternatively, other insurers have asked for rate increases to make the policies more profitable. Manulife Financial (NYSE: MFC ) and Genworth Financial (NYSE: GNW ) were among those asking for rate increases early last year.
Why are they leaving?
Insurance companies face the same challenges that retirement savers have lately. Typically, insurance companies take the premiums they get from customers and put the money to work through various types of investments, particularly bonds.
With bond interest rates near historic lows, insurance companies haven't earned as much income as they need to make the policies sufficiently profitable over the long haul. That explains recent requests for premium increases, but those increases obviously make it harder for policyholders to keep their insurance in force.
What to do
Protecting yourself against potentially catastrophic health-care expenses is smart, but not if it costs you too much to get that protection. Weighing the benefits and options available under different long-term care policies can help you balance affordability and financial security. With a combination of lower policy limits, longer periods before benefits kick in, and other traits, you may be able to tailor a long-term care policy that meets most of your needs and gives your nest egg enough protection to survive an extended period of skilled nursing or home health care.
Unlike some insurance products, long-term care insurance meets a real need that's difficult to protect yourself against in any other way. It's unfortunate that Prudential and other insurers have had to take the step of no longer selling long-term coverage, and if other providers don't find ways to step in and fill the void left by their competitors' decision, then it'll mean yet another worry you have to deal with in your retirement planning.
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