If you’ve read anything about Long Term Care Insurance in the news, it’s almost a guarantee that you have read about the rate increases that have been happening over the past few years. Journalists and newspapers love to talk about the rate increases and how substantial they are, but they often leave out some of the more important points that could be of help to consumers.
LTC Tree agents held a video discussion recently to discuss the issue of Long Term Care Insurance rate increases, how they work, how policyholders are handling them, and how consumers thinking about buying a policy can prepare for them.
Why Do Rate Increases Occur?
Long Term Care Insurance carriers made certain assumptions when the market was created in the 70s about mortality, morbidity, lapse rates, and interest rates that haven’t panned out in the ways they expected. On the contrary, the assumptions were way off.
Life spans have increased significantly, lapse rates on policies are extraordinarily low, and the interest rate is lower than ever thanks to the Fed. Because the companies inaccurately predicted all of these factors that influence the cost of long term care and the associated insurance policies, they had to make some changes in order to remain afloat in the market and continue providing insurance to consumers. Unfortunately, some of those changes include raising the premium rates on existing policyholders in order to balance out the heavy losses that could be incurred.
Though the news likes to sensationalize the rate increases, the truth is they aren’t as astronomical as people make them seem. In the video discussion posted above, the agents discuss how policyholders are initially outraged after receiving notice of a rate increase. They are upset and feel they have been cheated. Once we help break the numbers down for them, though, it becomes more clear that it isn’t completely unreasonable. Some premiums might go up as much as 50%, true, but when the original premium rate was a mere $1,200 annually, a $600 increase might not make that big of an impact on someone’s lifestyle and budget. Typically, the people who buy these policies have assets they are looking to protect, meaning they can often afford to accept the rate increase and keep their policy as is, which is extremely beneficial to them.
The Value of Policies
Many of the policies on which rates are being raised include lifetime or unlimited benefits, which means the claimant can receive benefits for as long as they need, be it 2 months or 20 years. These policies are no longer for sale for an obvious reason: the cost to insurance companies is huge. The benefit to consumers is huge, too, which is why if you can afford to keep that policy and take the rate increase, that is always the best choice.
There is another option, though, that is rarely mentioned. When a policyholder is notified of a rate increase, the options are not increase your rates or lose your policy. There is a third option that few people speak of: reduce your benefits and retain the same premium rates. While this may not be ideal, it can still help significantly. Rather than completely give up their benefits, policyholders can still hold onto some Long Term Care Insurance benefits but not have to pay the rate increase if they are unable to afford it. This helps them keep some sort of protection for their assets, because when it comes to coverage for long term care, there is no question that something is better than nothing, even if the benefits are minimal.
Though the market has been somewhat volatile in the past several years, things are looking up. Because insurance companies now have a much better idea of mortality and morbidity trends, recognize that lapse rates will persist at low percentages, and the interest rate environment may remain the same indefinitely, they have created much more conservative estimates that are more in line with the actual cost. So if you are looking now, you should feel reassured that things are getting better, rates are stabilizing, and companies are getting a good grasp on how this insurance works.
If you would like to learn more about Long Term Care Insurance rate increases and how we help our clients manage them, please watch our video posted above. If you have any questions or comments, feel free to post them on the video so we can help you out!