It’s something no one looks forward to, but every one should be prepared for, and I’m not talking about long term care itself (although that applies, too). Premium rates on Long Term Care Insurance policies can go up and it’s up to the consumer to plan for this potential change and hedge their risk of rate increases as much as possible by buying from a good company.
Long Term Care Insurance can offer some extraordinarily valuable benefits to policyholders who are looking to protect their assets and set up a plan for long term care. Like most other insurance, though, the premiums you pay can increase based on actuarial estimates and profit projections, which means the companies can raise insurance rates at any time if they meet approval from the state insurance departments.
Because many Long Term Care Insurance providers missed the mark on their estimates during the last few years, rate increases have become more common. Several big carriers have applied for in force rate increases on older policies that are no longer profitable due to estimates that were way off target. Morbidity and mortality are much harder to predict than anyone thought, and the low interest rate environment is something no one was prepared for, either, so in order to remain solvent, companies have had to seek rate increases on certain policies.
Even when the rates go up, though, most people are keeping their policy, and it’s not hard to see why. According to the CEO of Genworth Financial, a Long Term Care Insurance provider who has recently filed for several in force rate increases on older policies, more than three-quarters of policyholders are accepting the full rate increase. 83% have opted to absorb the premium hike and hold onto their original coverage, 12% opted to reduce their benefits, thereby paying a lower premium rate, and 5% have let their policy lapse in response to the rate increase. When you consider the basic value of the policy, it makes sense why most people aren’t willing to let go of it.
Let’s consider a policyholder who buys an average Long Term Care Insurance policy, which includes a 3 year benefit period, a 90 day elimination period, and a daily benefit amount of $150. Upon purchasing their plan, that individual automatically has a pool of wealth worth $164,250 to use for long term care once the elimination period is up. If they bought Inflation Protection, the value of their benefits continue to grow every year, meaning that policy will be worth thousands more down the road. Premium rates don’t come close to equaling the total value of the policy, so when you look at the numbers, it’s easy to see why so many people would opt to keep their policy. On top of the sheer monetary value of a basic policy, a large number of people with older policies have unlimited benefit periods, which includes benefits of an immeasurable value. Long Term Care Insurance policies with unlimited or lifetime benefit periods are no longer available any more for that very reason.
Long Term Care Insurance rate increases obviously aren’t what anybody wants, but there is always the chance that they might happen and it pays to be prepared. Taking the time to do your research when buying can make a big difference in the chance that your rates might increase, too. Always take a look at the financial ratings of a company and their rate increase history to get a better idea of whether or not rate increases are a common occurrence. Buying from a large, bluechip company can help reduce the chance that you will receive a huge rate hike and will also help increase the chance that your claim will be paid when the time comes for care.