Tuesday, September 28, 2010

LTCi Rate Hikes: Outrageous or Responsible?

When sold properly, Long Term Care insurance is a terrific risk-management tool. One thing that sometimes gets overlooked is that (generally speaking) premiums on this product are not guaranteed. That is, although carriers can't single out a particular insured, they can increase the premium for a given "block" of business. John Hancock, one of the "Big Boys" in this market, has just announced that they will, in fact, be seeking a 40% rate increase. There are a lot of (thus far) unanswered questions, chief among them being: which plans, exactly, are affected? There are other questions, as well, which is why we've turned to our "on-call" LTCi Guru, Herman Bruns:

My understanding is that the rate increase will NOT apply to the Custom Care II, Custom Care II Enhanced, or Leading Edge product lines. The older Custom Care product, the Fortis plans, as well as their group offerings will be impacted. Obviously these plans were under-priced at the time.....so it is likely that a 40% rate hike would probably not even bring these plans up to today's level of LTC premiums. The steeper rate hikes will affect the plans with the more robust inflation clauses.....so they will simply be offered things like cutting from 5% compound to 4% compound to maybe keep the premium level.

If the plan was dirt cheap 10 years ago, and it goes up by 25-40%, is it still dirt cheap? Compared to the alternative of not having LTC coverage at all, you still have a decision to make. If the plan had a contingent non-forfeiture clause in it (a standard offering today), and the rates go up by more than a specified percentage based on your age, you get to walk away from your policy and all the money you paid in is held in reserve should you ever need care. Try that with a health plan that you could not longer afford!!!!

[But what about those 10-Pay plans which promise a shorter premium payment time?]

10 pay plans only reduce the payment to 10 years....they don't guarantee the rate for 10 years. If you want a rate lock guarantee, buy a single premium pay plan, or buy a 10 pay with a 10 year rate lock. Happy to sell you either one. Once the plan is paid for, it is paid for. Nothing can be simpler.

[Okay, that makes sense, but what about folks who now find their plans unaffordable?]

If you are concerned about buying a plan and having to bail, buy a plan that lets you walk away from it and get 80% of money back if you need it and can still fog a mirror. Some carriers offer these. Else, buy a linked benefit plan with a single pay, money back guarantee.

Either way, let's not go out of our way to scare people from buying what could be their best protection from catastrophic financial ruin when their $80/month premium jumps to $112/month 10 years after they bought it. My goodness people, we all know how cheap health insurance was a mere 10 years ago, and now we are all upset about what amounts to trivia by comparison.

Maybe John Hancock simply never should have bought Fortis' block, or perhaps they should have tightened their underwriting a little more. If you are big in the group business like Hancock, and you take the majority of people with little or no questions asked, do you think you will have more claims issues than a carrier who focuses more on the individual market? Maybe a lowly A rated carrier like Genworth, who has little group presence, and no substandard health classes to offer, will hang in there better. I'll bet Penn Treaty had more claims than they thought.......but we all know why.

Lets not scare the general public any more than we have to......or do you want the government to take control of LTC insurance too. The Class Act should give you an idea already of the stupidity of government run LTC.

Thanks, Herman!
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