Long Term Care Insurance Rate Update – Summer 2013

The month of April has brought not only some nice springlike weather (and 2′ of snow in the midwest) but also some Long Term Care Insurance rate surprises as well.  Starting around the middle of 2012, rumors began churning in the Long Term Care world that “Gender based pricing” was coming – and that women would be paying more for their Long Term Care Insurance.  By April, two companies had released their new pricing: Genworth and John Hancock.  The continuing whisper is that the rest of the major Long Term Care insurers are rushing to introduce Gender-based pricing as quickly as possible so as to avoid adverse selection.  After all, if the statistic is true that women make over 70% of LTC claims, and you’re the insurance company, you must price this risk appropriately.  If you’re the only one not charging women more than men, you’ll have an artificially high number of women as new customers, because brokers will direct all of their business to you.

Some Long Term Care Rates Drop

With the introduction of more “granular” pricing structures that differentiate based on gender and as many as four different health classes, risk is being priced more evenly across classes than before.  For example, a healthy married couple will pay less than half of what two single, less healthy (but still insurable) women would pay.  Indeed, good health is more important than ever when applying for LTC insurance coverage and your personal rates can be affected dramatically by factors such as BMI (height/weigh ratio), whether you’re diabetic, a smoker, or have other ailments.  The “top” health tiers (Preferred Best at Genworth, Ultra Preferred with MassMutual, and Preferred with most others) now account for less than 10% of applicants, but enjoy rate structures that are up to 50% less than the higher “Class” ratings with most carriers.

Of course, you can only do so much to control your health.  Another good way to control the rate you pay is to closely examine the current pricing models, especially when it comes to inflation protection.  As recently as last year, the mathematical justification for purchasing 5% compound inflation protection was strong.  Buying a policy that paid $120/day with 5% increases was roughly the same as a policy that paid $150/day but with only 3% increases.  The crossover point for being ahead with the 5% increase strategy was just eight years.  Low interest rates have taken their toll on insurers and it’s now to the point where pricing on a $100/day policy with 5% increases is the equivalent to $190/day with 3% increases.  This pushes the break even point out to 35+ years, meaning the best “value” in LTC right now seems to be the 3% increase option in almost every case.  OF course, you’ll want to shop around which we at LTC Tree can help you with.