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LTCI Watch: Cards

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Genworth Financial Inc. (NYSE:GNW) is setting up a long-term care (LTC) planning education site, and it’s introducing an LTCI product with a design meant to hold costs down. It’s great to see Genworth continuing to have an interest in the LTCI market. If Genworth doesn’t continue to have some love for that market, who will?

And, certainly, consumers need to think more about LTC planning and know more about the possibility of insuring themselves against LTC risk. But it seems to me that one huge, obvious problem is that the kinds of people who normally would be obvious candidates for buying private LTCI are running on fumes.

They are former, or even current, corporate executives, business owners or professional practice owners who look prosperous. They take nice trips, play golf and give to charity.

But, back when the rules on credit cards and home equity loans were different, they borrowed money to survive the effects of layoffs, or to keep their businesses or practices afloat or adult children afloat during the Great Recession. They look fine, but the roofs in their houses are caving in because they are using all available income to pay off the bills and preserve the illusion that they’re solvent.

See also: Americans continue to struggle with saving.

Many of these people have probably paid so much interest in the effort to avoid staying out of bankruptcy court that they’ve sent the lenders far more money than the lenders ever expected to get out of these people. The secret debt may hurt insurers’ ability to sell protection products to younger prospects, because the parents’ debt may cast a shadow over several generations’ finances.

A modest proposal:

  • The lenders could identify the people who accumulated before and around the time the credit climate changed and who have paid far more cash to the lenders than the lenders expected to get.
  • Let the lenders classify the debt as paid in full and transfer responsibility for the amounts still owed to the Federal Reserve Board, which helped cause the problem in the first place by playing games with the money supply and credit standards.
  • Have the Federal Reserve Board cut the amounts it expects the borrowers to pay to a reasonable level, in exchange for the borrowers using some of the money saved to pay for retirement income and LTCI products.

The restructuring of the family debt glaciers created by the credit freeze would recognize financial reality, ease financial burdens that Federal Reserve Board policies and other federal policies helped create, and establish a stream of funding to help the older people whose finances have been hollowed out in the past decade obtain the kind of post-retirement financial security that they are pretending to have.

Of course, this is not a realistic proposal. There are all kinds of problems with it. But I think part of any realistic path to fixing U.S. retirement income and LTC planning problems may involve creative conversations between the people who write insurance and the people who create and securitize consumer debt.


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