LTCi policies became popular with employers and individuals in the early ‘90s and ‘00s. However, because these plans were relatively new, insurance companies based their pricing on assumptions that were either incorrect or on historical claims data that was not fully developed. In addition, no one predicted the 2008 financial crisis which lowered federal interest rates and put further pressure on insurance companies to raise rates.
Since then insurance companies revised their pricing assumptions to reflect:
- Higher-than-expected claims incidence, largely due to no medical underwriting;
- Longer life expectancy due to medical advances;
- Lower-than-expected policy termination rates; and
- Perhaps most importantly, adjusting to the low interest rate environment by reducing their interest rates assumptions from 6-8% to 2-3%.
As a result of these factors, many insurance companies (including CNA) are no longer selling long term care insurance and if they are, they do not offer LTCi with guaranteed approval.
Today’s long term care insurance products are priced much more accurately and have considered the issues of the past. A recent Society of Actuaries study showed the likelihood of today’s products ever needing a rate increase is 10% and if there was a rate increase needed the average increase would be 10%.