Challenging two long-standing norms in financial advice: home-buying and long-term care insurance

Housing: While there have been periods of time when owning a home was a costly endeavor (most recently during the housing crisis of 2008-2009), the argument of rent vs. buy has usually fallen on the side of ‘buy.’ Beg, borrow, or steal a down payment, pay mortgage and property taxes religiously, and cash out when it’s time to move on. That sounds almost as American as hot dogs, baseball, and apple pie. Until now.

The Wall Street Journal¹ recently reported that “Home-Buying Math No Longer Adds Up.” In fact, “It is now less affordable than any time in recent history to buy a home, and the math isn’t changing any time soon.” There are multiple reasons why:

• Prices that moved higher during the pandemic and aren’t coming down;
• Historically low mortgage rates rapidly moved higher with inflation;
• Demand for homes currently exceeds supply.

While rents have also increased, the Journal notes, “The average monthly new mortgage payment is 52% higher than the average apartment rent.”

Thus, for the first time in years, building equity in a home may not currently be as attractive an option for many first-time and young buyers. If you have adult children who might be in the market looking for a home, share the sobering news, and have them do the math before they buy.

Long-term care insurance: The gold standard for aging seniors concerned about care as they age is owning a long-term care insurance policy. Long-term care insurance policies provide payments to cover the costs of an aide in your home, along with the care should a stay in a nursing or extended care facility be required. But the gold standard is in jeopardy².

As a result of a lawsuit that was settled in March 2023, Genworth, the company with the largest block of long-term care insurance policies, agreed to provide a variety of options to existing policyholders. These options range from alternative policies with lower premiums and fixed (or reduced) benefits to maintaining existing policies but face premium increases that range from 130 to more than 600 percent!

Unlike car insurance, premium increases for long-term care policies are class-based. If an individual gets in a car accident, for example, there’s a high probability his/her auto insurance premiums will increase. In the long-term care insurance space, every member of the class gets the same rate increase once approved by the state insurance commissioner.

With premium increases causing policies to be prohibitively expensive for many policyholders, it will be incumbent for policy owners (and their financial advisors) to determine which reduced benefit will be the most beneficial to cover potential future long-term care needs.

For many, this will be a difficult balancing act. For others, the notion that long-term care needs were covered forever will be wiped away.

1 Heeb, Gina. “The Math for Buying a Home No Longer Works.” The Wall Street Journal, 11 Dec. 2023.

2 Carrns, Ann. “Difficult Choices for Some Long-Term Care Policyholders.” The New York Times, 15 Dec. 2023.