Long Term Care Rate
Long term care insurance premium increases have recently been in the news. It is important to understand that rate increases are not a sign of a “bad” policy or carrier, and the lack of rate increases is not a sign of a “good” policy or carrier.
Why do insurance companies do rate increases?
Insurance companies go through a complicated process of analyzing claim data, future claim data, interest rates, future risks and many other factors before implementing rate increases. Rate increases cannot be applied to any specific age demographic, gender or health condition; they are approved based on policy (product) statistics only. Insurance companies must get approval from each state’s Department of Insurance (DOI) for any increase to go into effect. Carriers propose the increase they would like to implement and the state approves it ‘as is’ or requires modification. Because of this involvement by state departments, the state where you reside determines the percent of increase that your policy could face.
Example of a Rate Increase:
An 85% premium increase seems like a huge amount. But when you consider that some carriers have not increased premiums for years and years — perhaps due to claims studies, lack of approval from state DOI or other mitigating factors — it may seem more reasonable. A large rate increase may also seem more reasonable when you consider it against the cost of purchasing new coverage (at your current age.)
|Example of Multiple Rate Increases||Annual LTCI Premiums*||Cumulative Benefit Pool||Annual Cost of Care in Nursing Home Today**|
|55 yr. old||$2,000||$180,000||$91,250|
|20% rate increase at age 60||$2,400||$208,669||↓|
|20% rate increase at age 70||$2,880||$280,434||↓|
|20% rate increase at age 80||$3,456||$376,880||↓|
|TOTALS at age 90|| $97,360
(Total Premium Paid In)
|$506,495||$259,939 for 1 year of care|
** Projecting a 30 year 3% compound inflation escalation in care cost
What to do if you get a rate increase
Most carriers implementing a rate increase will allow you to make changes to your policy without going through underwriting again so that you may lower your increase or keep your premium the same. You may be able to lower your inflation protection, daily benefit or number of covered years to keep your policy affordably priced.
Selecting the right carrier can make a big difference with future rate increases. It’s wise to choose a carrier with a large “book of business” so that they have a lot of claims data to study and base their decisions. Also, select a carrier that has strong underwriting experience. If they thoroughly comprehend the medical conditions they insure (know the risk and can back it up come claim time), they’ll likely know what to expect for their business and for you, 30 years from now.
Learn more: Selecting a Plan >>
If you’re faced with a rate increase, speak with your financial advisor or the specialist where you purchased the policy before deciding how to proceed. Learn more about long term rate increases here.