According to an article we recently read on the website of the authoritative Forbes magazine, there may be big changes coming in the way consumers pay for long-term care (LTC) insurance. If you’re considering buying an LTC insurance policy or know someone who is, you owe it to yourself to read this timely article.
At first the change might not seem all that profound, but it marks a departure from the way in which LTC policies have been sold since their inception. To quote Forbes, “Genworth, the biggest seller of stand-alone long-term care insurance, is about to ask state insurance regulators for permission to fundamentally revise the way it structures premiums. Instead of holding premiums flat for several years followed by big double-digit rate hikes, it wants to be able to revise premiums annually.” The company has proposed this change before the National Association of Insurance Commissioners, and while it may take a few years before the Association gives the go-ahead, individual states could act more quickly.
Genworth calls their new premium design the “Annual Rate Sufficiency Model.” Under this new system, consumers would probably see relatively modest single-digit rate increases in their LTC premiums every year or two. It’s even possible, says Genworth, that in a year of higher returns on investments and lower payout of benefits, the company could actually reduce premiums, although that sounds like a long-shot to us. But to the company, the bottom line is flexibility. Genworth’s CEO Thomas McInerney argues that the present model doesn’t allow companies to price their products realistically, and it infuriates policy holders who have seen level premiums for five or more years followed by huge increases. Sometimes, Genworth implies, companies facing losses have approached state insurance commissioners seeking permission to raise rates more gradually only to be denied approval. All this has contributed to a huge decline in the number of companies offering long-term care insurance, and a plummeting drop in the annual number of policies sold from roughly 700,000 a decade ago to about 100,000 today. The market seems ripe for an overhaul.
Are consumers ready for this kind of continually-changing LTC premiums? The Forbes article asks the obvious question, “How would consumers respond to seeing their premiums revised every year? This happens routinely with health, auto, and property and casualty coverage. But not with most term life insurance, where premiums may not change for decades.” Still, in a recent survey cited by the Forbes article, a whopping 71 percent of long-term care insurance buyers stated they would rather have small premium increases every few years, while only a tiny group – about 2 percent – said they would prefer large, infrequent premium hikes.
Genworth even claims that if they were allowed more pricing flexibility, initial premiums could actually be about 10 percent lower than they are at present and that over the life of the policy buyers would pay about 17 percent less for the same coverage. “Why would an insurance company propose a pricing model that might bring in fewer premium dollars per buyer over time?” asks Forbes. “It would allow carriers to more closely match prices to claims experience and interest rates, and adjust policies as necessary (and through a far simpler regulatory process). It could generate more income in the early years which could produce more investment income, assuming interest rates finally return to historic levels. And lower initial premiums might attract more, somewhat younger, buyers.” Those sound like worthwhile goals to us.
But none of this answers the question many AgingOptions clients and radio listeners ask: “Is long-term care insurance right for me?” There’s no simple answer. For many, LTC insurance is an excellent way to preserve assets and avoid becoming a burden to your loved ones, if you can afford it – not just today, but ten or twenty years from now. For others, the high premium cost is just too steep to justify. As with all the other complexities of retirement, the most important thing you must do is to get good, sound, unbiased advice from professionals who aren’t selling any product. Asking a long-term care insurance salesman for objective advice doesn’t really make good sense.
Why not take advantage of one of the best resources you’ll ever find – an AgingOptions LifePlanning Seminar? There you’ll get a solid overview of today’s long-term care landscape, along with some alternatives to LTC insurance. But more importantly, at one of these highly popular, no-cost events, you’ll learn invaluable information to help you integrate all the important aspects of your retirement plan: legal, financial, housing, medical and family. These must all mesh together like pieces of a puzzle, or else your so-called plan can become dangerously unbalanced, destined to fail you in a crisis. An AgingOptions LifePlan is the answer to a fruitful and secure retirement. All you need to do is to click here to select the seminar of your choice, then register online – or, if you prefer, call us during the week so we can assist you. We’ll look forward to meeting you soon. Meanwhile, age on!
(originally reported at www.forbes.com)