Jay Scheiner, Partner, Agent Support Group-August, 2019
“Your Long-Term Care Insurance Rate Spiked. Now What?”
According to the New York Times, about twenty years ago insurers blundered by failing to predict the future: “Not only did they underestimate how long policyholders would live, they overestimated how many people would drop their policies, which meant insurers would not have to pay claims.” As a result, premiums for stand-alone Long-Term Care (LTC) policies have been steadily increasing.
Even mere rumors of rate hikes lead to anxious calls to insurance advisors from policyholders unsure of what to do about their existing policies. These conversations are stressful for everyone involved. The clients, who are generally older, have few options other than keeping the coverage and paying higher rates, or reducing their benefits with the goal of minimizing premium increases.
Traditional Stand-Alone LTC has several major weaknesses:
– An insured who dies suddenly or after only a brief illness never benefits from the insurance
– Premiums are not contractually guaranteed – insurers underestimated the number of insureds that would go on claim, resulting in premium increases that forced clients to search for ways to afford maintaining their LTC policies.
– The policies were almost exclusively based on a reimbursement model rather than indemnity.
The new generation of LTC policies eliminates the shortcomings of the prior generation of products. Clients may now choose contracts that have:
– A pool of money available to fund a set amount of benefit, whether the insured ends up using LTC services or dies without having gone on claim. The client can choose a policy where the total pool of funds is the same for LTC and death benefit, or opt for a greater pool for LTC dollars than life insurance.
– Premiums that can be contractually guaranteed for up to the life of the insured with no possibility of rate increases, eliminating the angst experienced by the holders of non-guaranteed premium products. Policies can be purchased as single-payments, 10-pay, or under a variety of flexible funding scenarios.
– Indemnity models are now available in addition to the traditional reimbursement policies.
Conclusion: Advisors should be sensitive to the plight of those who own older LTC contracts. Offer solid advice, and separate fact from fiction. While much of what is reported in the financial press is justified (pointing out the weaknesses in the earlier contracts), the need to plan continues to increase. Clients now have options in policies with lifetime contractual guarantees, a certainty of payment for both extended care and death benefit, and the choice of indemnity or reimbursement models.
At Agent Support Group we are here to help you navigate through the complexities of long-term care funding for your clients.