When long term care insurance was first conceived and offered, back in the 1980's, most LTCi premium rates were much lower than today's policies. Why have they increased so much and why are long term care insurance companies raising premiums on existing policies?
Well, for one thing, many long term care insurance polices today offer significantly more benefits than the old "nursing home only" policies. Due to consumer demand as well as consumer protection laws being passed, long term care insurance policies of today have less restrictions (As with any contract, always read the fine print!). The more an insurance company has to pay out, the higher the premiums with be.
Other reasons, besides the all too prevalent inflation, are that long term care insurance companies had no previous actuarial data to crunch. For instance: How long would a person pay before going on claim? How many would die before collecting benefits? How much money would the long term care insurance company need to pay out in claims? And finally, would the company's product sales and investments provide enough assets to keep them viable?
Insurance companies didn't have past experience with long term care claims, plus competition was stiff. As years ticked by, many companies offered more benefits while keeping their premiums quite low. Some even sold low-priced policies to people with health conditions that would likely lead to long term care. This was a big mistake.
My mother bought a low-balled policy that was packed with benefits. She paid about $1500 a year for 5 years. After 3 year's worth of recent rate increases, her premium has more than doubled. As strokes and Alzheimers run in our family, we're hoping that the insurance company doesn't increase her premium many more times.
Are we upset that Mom's premium has increased so much? Yes and no. No one likes unexpected, unpleasant changes and certainly no one wants to pay more for insurance, but we do appreciate that she has been protected against catastrophic long term care costs all these years, whether she used the insurance or not.
Now some folks would call significant rate increases on an unsuspecting consumer fraud. But it's not. It IS quite unfortunate, but it's not fraud. If it were, the Department of Insurance in every state would shut the long term care insurance companies down.
Most LTCi companies simply did not have the foresight to charge enough money for their earlier policies. They guessed at how much money they'd need to charge and they guessed wrong.
They're still trying to figure out how much they need to charge in order to maintain a healthy pool of money from which to pay claims, while still remaining competitive. The playing field keeps changing. Not the least of their problems is the rate of inflation in the long term care sector. LTCi companies have to pay out more money for equivalent care every year.
That's the insurance companies' point of view. But there are two sides to any story.
It does appear that some LTCi companies may have used unethical, but not previously illegal tactics.
Companies sold low-priced policies to unhealthy people, then sold their LTCi business claiming financial duress due to too many claims. The original, "low-balling" company makes money while the new owner of the LTCi business is left to clean up the mess, and the policy holders face the unenviable choice of paying increasing rates or giving up their coverage.
Why do I say that companies, who didn't even have proper actuarial data, could be considered unethical for selling low-balled policies to unhealthy people? Well, because I've spoken with truly ethical, independent long term care insurance brokers who wouldn't sell those companies' products unless there was no other way to insure a person. Even then, they'd make sure to let their client know that their rates would most likely increase in the future. These brokers could see what the future held, so why didn't the companies consider the future?
The problem is that it is difficult, if not impossible, to prove that an insurance company was aware of these concerns ahead of time.
Luckily for the consumer, there have been positive changes. Laws are being passed due to the frequent and high rate increases. Do your homework. Find out exactly what your state's laws are pertaining to the sale of LTCi and the obligations of LTCi companies to their policyholders.
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My mother was given those 2 options this year when she received notice of (yet another) premium rate increase. Since she had only paid about $10,500 in premiums, which that would only cover a little over 3 months worth of long term care in a skilled nursing facility, she opted to keep her existing policy/premium. She was lucky. She was able to afford the higher premium even though she is on a fixed income.
BTW, a few LTCi companies have not raised their rates. They offer very good, expensive policies, therefore reducing the possibility of future rate increases. Even with laws in place; inflation, a drastic increase in claims and how well a company's investments fare can contribute greatly to whether an LTCi company asks for rate increases or even remains viable.
Check your State's Department of Insurance to find out which companies have raised rates and also to see if any complaints have been made against a particular insurance company or agent. Check with the services like Weiss Research, Standard & Poor's, Moody's, AM Best and Duff & Phelps to research the financial status of any long term care insurance company.
By: Clay Cotton
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