The biggest concerns for people when considering whether or not to purchase LTC insurance are will they be able to afford it and will it provide enough coverage. But, due to the failure of two long-term care insurers, a whole new concern has been brought into the picture. Will the insurer still be in business when it comes time for you to make a claim?
Penn Treaty Network America Insurance, and its subsidiary, American Network Insurance were placed in liquidation in March. This Allentown, PA., based long-term care insurer leaves 76,000 policyholders uncertain if they will get the benefits they paid for. The two companies now have $468 million assets and $4.6 billion liabilities. The reason for this failure is due to an underprice of their policies.
If you are in the market for buying LTC insurance, prior to purchasing, take a look at each insurers’ financial stability. If you study the financial-strength ratings and ask good questions about the insurers’ underwriting methods, you will increase your odds of finding an insurer that will keep your premiums stable and not go belly-up. When a company goes up in flames, it is the responsibility of state guaranty associations to take over paying claims. If you have a policy with a generous plan, you will more than likely fall short of the promises you were made if the state has to take over.
According to Scott Witt, a fee-only advisor in New Berlin, Wis., the long-term care insurance business generally “has been an uphill battle on a number of fronts.” It is very rare for an insurer to fail the way Penn Treaty did. The main issue is when insurers initially overestimate the number of policy holders that might drop coverage and underestimate the number who will end up making claims, which then cause years of ultra-low interest rates and destroy investment returns.
There is no way for insurers to be certain of how people will drop the coverage or make a claim, which gives insurers only two options: to impose a huge increase on premiums, or to leave the business. One of the largest long-term care insurers, John Hancock, left the market last year. As well as Genworth Financial, who is going to be acquired by investment company China Oceanwide. Luckily, this will not have any impact on current policies. The capital committed by China Oceanwide will allow Genworth to focus on reducing debt.
From here on out, the LTC insurance business is going to be a lot better for insurers as well as policyholders. Insurance experts say, interest rates are going to increase, which boosts investment returns for insurers, and policies today are being priced with much more conservative assumptions than insurers used in the past. This will make rate increases cease. This means that future profitability will also be more stable for insurers.
Even after stating all of that, you should still be sure to check the insurers’ financial strength before purchasing a policy. Make sure to ask important questions about the policies and the ratings of the companies, such as what tests and medical documentation are required? You obviously do not want to be denied coverage, but you also don’t want coverage from the insurer with the loosest standards. Some insurers also offer discounts to people who have good health. According to Claude Thau, a long term care consultant in Overland Park, Kansas, “If they draw the line behind you, you’re in the company of people who are healthier, and the stability of your premium is improved.”
If you’re already covered by a policy, watch for signs of the company’s deterioration by checking your insurer’s financial-strength-ratings. If you insurer is struggling, don’t be in a rush to leave your policy and find a new one. If you are older with not as good health, you may not be able to find another insurer to provide coverage.
If you think your insurer is headed down the drain, check www.nolhga.com to find your state’s guaranty funds website. The cap for long-term care coverage depends on which state you live in. They can range anywhere from $500,000 to $100,000. If your policy covers more than your state’s coverage limit, lower your benefits before the state guaranty starts.
Doing that will allow you to avoid paying for extra premium benefits you will never receive, which is now a problem for many of the policyholders at Penn Treaty. If they want to keep their coverage, they have to keep paying the premiums, and the state guaranty associations can get approval from the state to raise their premiums as they wish. Around 50% of the policyholders have claims that exceed that the maximum amount their state guaranty association will cover. According to Kiplinger, the Penn Treaty liquidator and the court will decide whether any of those excess claims can be paid from the companies’ remaining assets, the insurance department said.
At LTC Tree we have a twenty year track record of being able to successfully sift through the bad companies like the aforementioned Penn Treaty. We offer our clients access to the blue-chip insurance companies that have been around for 100+ years and have weathered issues like the Civil War, WWI, The Great Depression, WWII, 9-11, and of course this past 2008 Financial Crisis. Since Long Term Care Insurance is such a long-cycle product you want to go with a company that will not follow Penn Treaty’s path and that has deep pockets.So give us a call at LTC Tree and we’ll help you pick out which insurer and policy would the best fit for you.