I often have this conversation with folks. Either those who are considering buying, or those who already own a policy and are seeing a rate increase come thru. The answer to this depends on what type of policy.

ON Hybrid policies: these policies are combination contracts. They marry hole or universal life insurance (or sometimes an annuity) contract to a long term care rider. If you have a claim, they will kick out money to pay for care. If you die, they will kick out a death payout to a beneficiary. On these policies you can get a contractual commitment that the price will never go up. You pay more for these policies than for traditional long term care insurance.

ON Traditional policies: these are long term care only. Like care insurance, if you make a claim it will kick out money to offset the cost of care. If you die without a claim, the vast majority of these (like care insurance) simply lapses. On these contracts, the insurance carrier reserves the right to have a rate increase down the years if it is approved by the insurance commissioner and if it applies to everyone in the state. This “open door” on rate increases makes people leery. They may even have spoken with someone who has had a large increase. So some truth here may be helpful….

The Society of Actuaries put out a white paper on long term care policies in particular.1 They analyzed the actuarial assumptions that were built into pricing for policies and the result over time on rate increases. The table below is helpful:

But what about rate increases
1Data Source: Data compiled by Steve Olsen (www.ltcshop.com) and Steve Foreman (www.ltc-Associates.com).

Notice that the number and size of rate increases has dropped for policies sold after 2003. In fact there is that small orange group appearing of “rate stable policies.” What this means is that the actuaries who set prices for these products are more knowledgeable about claim rates and lapse rates now; they are less likely to seek a rate increase because the underlying assumptions are more accurate. No one can promise you won’t have a rate increase on this type of policy though. There is one variable that is not known: the stock market. If the rate of return in the investment market drops for an extended window, insurance companies are likely to come back for rate increase approval by the Insurance Commissioners.

Overall though, consumers should take heart. You can buy a hybrid policy and have a warranty on the rates, or you can buy a traditional and have more confidence that the rates will be more stable than in the past.

That is the real answer – and the only one any insurance professional can give you that is truthful.

 


 

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Long Term Care Claims & Insurance

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