Long Term Care Insurance Premium Increases

Long Term Care Insurance Premium Increases – Executive Summary How Long Term Care Insurance Rate Increases Job Decisions to Make When the Premium Increase Happens Deciding to Handle Premium Increases The Bottom Line

As the long-term care insurance industry continues to struggle in today’s low interest rate environment, an increasing number of clients who have purchased long-term care insurance in the past getting notified of price increases – and they are often large increases, even from major companies such as GenWorth, John Hancock, Prudential, and MetLife.

Long Term Care Insurance Premium Increases

While the LTC rate increase may come as a surprise, however, the truth is that in many cases the coverage is still cheaper than buying the policy new in today’s market – which basically means, even with the high increase, continue with the LTC. coverage can be very good. Nevertheless, in some cases the price increase makes the insurance unaffordable, which forces them to decide how to change and reduce the coverage to maintain the original prices. When such reductions are required, most clients should choose to reduce the benefit period, and older clients can also reduce the rate on the inflation rider; most clients will probably want to avoid the level of daily benefits.

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The good news, however, is that since LTC insurance is more expensive in the current market, price increases on today’s new policies are much less likely. . Regardless, it is still necessary to properly address and manage the rate increases that are occurring on coverage purchased years ago.

Michael is Head of Planning Strategy at Buckingham Strategic Wealth, which provides an evidence-based approach to private wealth management for near and current retirees, and Buckingham Strategic Partners, a management services provider turnkey wealth supporting thousands of independent financial advisors through the scaling phase. of growth.

In addition, he is the co-founder of the XY Planning Network, AdvicePay, fpPathfinder, and New Planner Recruiting, former user editor of the Journal of Financial Planning, host of the

Podcast, and publisher of the popular financial planning industry blog Nerd’s Eye View through his website, dedicated to advancing knowledge in financial planning. In 2010, Michael was recognized with one of the FPA’s “Heart of Financial Planning” awards for his dedication and work in advancing the profession.

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Qualified long-term care insurance (which is eligible for tax-free benefits under the Internal Revenue Code) must be “guaranteed renewable”—meaning as long as premiums are still being paid, it must ‘ insurance company to continue the coverage of the client, and they can not be single. the client out to cancel his/her coverage or increase the premiums.

However, rates on guaranteed renewable insurance can be increased by going to the state Department of Insurance and requesting a premium increase for an entire “class” of policies, such as “all policies issued to persons age 55-64 in the year 1998.” – and if your client falls into that group of policyholders from that age range and that year in that state, the person’s rates can – client increase.

Since state insurance departments have to agree to price increases – which they don’t like very much – why do they accept them at all? Because in situations where the premiums are too far below the expected claims, there is a risk that the insurance company could be broke and unable to pay all the claims to all policyholders. At the end of the day, it’s better to have a rate increase that ensures policyholders get all their benefits, than to keep prices in place at the risk of partially or completely waiving the policies dead

To allow companies to make up their previous losses, or to increase the premiums so that the insurance company can make a large profit in the future. Premium increases tend to be just enough to ensure that the company remains solvent and able to pay all claims for each policy owner. Of course, there is some uncertainty about the forecasts, so it is possible that the insurance department will allow a rate increase large enough so that the insurance company can get additional profits.

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However, in practice it seems to be the other way around; the insurance departments have been so reluctant to increase increases unless it is absolutely necessary that the increases be frequent

When they happen (because it’s been so many years that the insurance company hasn’t been paying too much), and in the end some companies had to go back later and ask

Premium increase because it ultimately turned out that the initial increase was so conservative for existing policyholders that it still wasn’t enough to ensure vulnerability (much less any profits) for the insurance company.

So with all the steps involved for an insurance company to approve a price increase, what should clients do when they get the call?

Understanding Traditional Long Term Care Insurance (2023)

The good news and the bad news is that there are usually more options than just “pay the new premium, or cancel the policy. ” To give policyholders flexibility in how to handle rate increases, insurance companies typically offer several options, including:

To the extent necessary to provide benefits commensurate with cost (e.g., from a 5-year benefit period down to 4 years)

(if the policy included an inflation rider) to the extent necessary to provide benefits in line with cost (eg, from a 5% inflation rider down to a 3.5% inflation rider)

The bad news, of course, is that more options make the decision more complicated. While not all insurance companies and high rise situations will include all five options – the requirements for what’s available vary by state and some insurance companies offer more flexibility than others – most companies offer at least one or two of the options in the middle, as well as the first and the last.

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It is reasonably priced. For example, consider the situation in a different context, as if the cable company came forward one day and said:

“Our apologies. We just found an error in our account. It turns out that although you are currently receiving the basic cable service of channel 187, we have actually been billing you for the basic service of channel 114. After we discovered our error, unfortunately we have to increase your rates to charge you for the channel 187 premium service you are receiving. Alternatively, if you wish, you can downgrade your service to the basic channel 114 service you have been paying for all along, and we will continue Until charge you a single amount. In any case, however, we will not charge you anything for all the years that we have inadvertently provided you with the premium service for the base cost.”

If you want prime channel 187 cable service, and can afford it, you should go ahead and pay for it even after the price is “fixed”. While it’s unfortunate that you can’t get the same features for the original cost, the truth is that the original price was wrong, and the new price is right. The new prices can still be worth it for the benefits you get.

And in particular, this is especially true in the context of long-term care insurance, as policies that receive incremental increases are generally

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Today! For example, a $200/day policy with lifetime benefits that would have cost $2,000/year if purchased back in 2001 could receive a 50% increase notice – meaning the premium jumps up to $3,000. But a comparable policy today for the same benefits for the same age could easily cost upwards of $4,000 (and of course, lifetime benefits aren’t even available anymore!). In other words,

And of course, if the client bought the policy 11 years ago, the daily benefit would not be $200/day but would be up to about $350/day with inflation adjustments; it could cost almost $7,000 to get that policy new in today’s market!

So in comparison, while a dramatic price increase from $2,000 to $3,000 may come as an unpleasant surprise, it

Represents a fantastic deal for the future broadcast from here. In turn, this means that if the policy is still affordable, it almost always is

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Keeping coverage at the new rates is a good financial decision (assuming, of course, that the coverage is still needed in the first place).

2/3/4) Keep the current price and reduce the policy’s daily benefit amount, or benefit period, or inflation rate, to the extent necessary to provide cost-effective benefits

Where the premiums are not affordable after an increase, the next option is to choose one of the options that reduce coverage (but not cancel it), to bring benefits down to the level where they are compatible with ‘ original price.

Especially if it is 5+ years in length. The reason is simple: the average long-term care insurance claim is only about 2.8 years (1040 days). The median bid is even shorter, as the average is distorted by a small number of very long bids. While it is true that there is some risk that your client could become the next ultra-long claim, the odds are that this will not happen, and that having a long benefit period will simply mean paying for a

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