In my nearly thirty years of working with consumers on their retirement plans, we have used traditional long term care policies to ensure against depleting assets, to provide choices and retain dignity in the later years. Though the premiums for these policies could be increased over time, we are always surprised and even a bit shocked when this occurs. Here is why this happens:
Reasons for Premium Increases on Long-Term Care Insurance Policies:
Rising Healthcare Costs: One of the primary drivers of premium increases is the continually rising cost of long-term care services, including nursing home care, assisted living, and in-home care. As healthcare expenses increase, insurance companies must adjust premiums to cover these higher costs.
Increasing Life Expectancy: People are living longer, which means they are more likely to require long-term care services in their later years. As a result, insurers have to account for the greater likelihood of policyholders making claims, which can lead to higher premiums.
Low Interest Rates: Insurance companies often invest premiums to generate income and help cover future claims. When interest rates are low, as they have been for an extended period, insurers earn less from their investments. To compensate for this reduced income, they may raise premiums.
Underpricing in the Past: In the early years of long-term care insurance, some companies underpriced policies to attract customers, not fully accounting for the actual cost of future claims. As these companies realized the need for higher premiums to sustain their obligations, they began increasing rates for existing policyholders.
Policy Design Changes: Some policies may have been designed with features that later proved to be more expensive than anticipated. As insurers learn from their experiences, they may modify policy designs or increase premiums for certain policyholders to align with the actual costs of benefits.
Brief History of Premium Increases:
Long-term care insurance premium increases have been a significant concern for policyholders and the insurance industry over the past few decades. Here's a brief overview of the history:
1980s-1990s: Long-term care insurance gained popularity during this period. Insurers offered policies with relatively low premiums, often underestimating future costs. As a result, many insurers experienced financial difficulties and began raising premiums for existing policyholders.
2000s: Premium increases continued throughout this decade, with some policyholders facing substantial hikes. The industry began implementing more stringent underwriting standards to better predict future claims costs.
2010s: Premium increases persisted, and the industry introduced new policy designs that included provisions for premium stabilization or rate increases over time. Some states also introduced regulations to protect policyholders from sudden, excessive premium hikes.
Present: Premium increases remain a concern, but the industry has become more transparent in explaining the reasons behind these hikes. Some policyholders have chosen to reduce their benefits or adjust their coverage to mitigate premium increases.
Consumers considering long-term care insurance should carefully review policy details, including potential premium increases, and consult with a knowledgeable financial advisor to make informed decisions about their coverage. Additionally, it's essential to understand the state-specific regulations governing long-term care insurance, as they can vary significantly.
The trend of increasing premiums in traditional LTCI plans has led me to pivot towards other types of policies, such as Linked-Benefit plans that have contractually guaranteed premiums. Contact me at 352-609-5262 or david@ifgfl.com for a detailed explanation.