Long-Term Care Insurance Policy Rate Increases
What you read is not always the full story. Most long-term care insurance policies are intended to have level premiums. There are some policies where the premium does go up each year, by design, as benefits increase or you elect to increase benefits. However, most policies have premiums which are intended to remain level based on your age at the time of application, your health, and the amount of coverage you selected. Since most people will select some kind of inflation protection, the premium is intended to remain level while the benefits increase—the cost of the inflation benefit is already factored into the premium. As you read articles about premiums increasing, be aware that there are plans that intentionally go up over time.
Today, all plans are priced with the very low interest rate environment in mind (interest rates have been low in the United States over the last decade). This was not always the case. Some of the older series of products have had rate increases. Those increases were based on a few factors:
- Interest rates
- Lapse rates (meaning, how many people drop their policies. In practice, very few do, but this was not factored into premium pricing on many older plans)
- Claims and underwriting experience
Today, underwriting is much more scientific and conservative than before. Premium costs now consider low interest rates, low lapse rates and actual claims experience as well. The Society of Actuaries suggests the chance of a rate increase on a long-term care policy sold today is very, very low. Regardless of those facts, it is also not easy for insurance companies to raise rates on the products being sold today.
Insurance companies must first get their rate approved to start with and indicate they have come up with premium schedules based on sound actuarial data. Essentially, they need to actuarially certify that the premiums make sense for the policies selected. In the event an insurance company wishes a rate increase, they must go to the Department of Insurance in each state that they’re looking for the increase, show a substantial need based on actuarial data and have it impact a class of people in a product series (in other words they can’t just pick on you).
This is a good article discussing this: http://www.brokerworldmag.com/articles/articles.php?articleid=4186
For an older policy going through an approved rate increase, rest assured it is only due to actuarial data. Even with the increase, the premiums for those policies are still significantly lower than what a new policy with the same benefits would cost today.
Most insurance companies will also provide those policyholders with options to decrease their benefits to keep the premium lower or level.
Single premium or limited premium policies are available which eliminate the possibility of a rate increase. These “hybrid” plans also provide death benefits as well. For some consumers, this could be something to consider. These plans are not; however, partnership certified. You should discuss the options with Mary Ann DeKing before making a decision.