The Continuing Rise in Long Term Care Premiums

       A few years ago I wrote about the number of clients calling our office who are getting notices of substantial rate increases on their long term care insurance policies.  Since then it has been a problem that has only increased in frequency.  An article this week in the Wall Street Journal caught my eye.

       Steep rate increases keep coming as the cost of long term care keeps rising and the population is aging.  What happened is that when insurance companies priced these traditional “use it or lose it” policies in the 1980’s and 1990’s, they missed badly.  They underestimated the number of claims actually filed.  They also missed the mark on how long people would collect on the policies before dying.  Finally, they underestimated the number of people who would let the policies lapse without ever filing a claim.

       Other factors have contributed to the problem.  Insurers set premiums too low and marketed the policies as level premium, telling potential customers they could expect the rates to hold steady for years – although these rates were never guaranteed.   A downturn in the economy has also contributed to the problem.  When insurance companies take in premiums from healthy insureds that money and other funds held in reserve are used to pay out claims.  They count on a certain interest rate on the reserves when projecting what will be needed to pay out claims.  Low interest rates since 2008 have made the problem worse.

       So what should you do if you have an older policy and are facing an increase?  And what if you don’t have long term care insurance?  Should you still consider it?

       If you get a rate increase it may make sense to reduce your coverage a bit to get the premium to a more reasonable number but be careful not to leave yourself too short.  See my blog post on 11-9-15 talking about the various options.

       If you don’t currently have long term care insurance, you might want to take a look at the next generation of policies – asset based policies.  You move a portion of your nest egg into an annuity or a life insurance policy that provides long term care coverage if you need it.  You don’t typically pay an annual premium and the insurance company can’t raise the premiums in later years.

       These policies are safer for the insurance company because you are committing more of your money towards the policy and towards your care before they pay.  But there are also positives for the policyholder.  If you never need the care your money- with some growth – can be passed on to loved ones.  It can be a better, safer deal for both insurer and insured.  I have written about these policies in my blog as well.  Go to my blog and search the category “New Jersey long term care planning” to find those articles.

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