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Insurers Raising Premiums, Changing Terms on Long-term Care Policies

If you’re selling long-term care insurance to clients, it’s best to stay away from carriers with a history of raising premiums or discontinuing other types of insurance coverage. Several insurers already have raised premiums this year.

If you’re selling long-term care insurance to clients, it’s best to stay away from carriers with a history of raising premiums or discontinuing other types of insurance coverage.

Several insurers already have raised premiums this year. Meanwhile, MetLife stopped selling long-term care insurance last November. Triggering these moves is the fact that lapse rates on long-term care coverage are lower than insurance company actuaries estimated. Because people are holding onto their coverage, insurers are paying more claims than expected. This is taking a toll on the carriers’ bottom line and reserve requirements.

MetLife will continue to accept new applications for individual long-term care insurance policies received on or before Dec. 30, 2010. MetLife also announced that this year, it will be discontinuing new enrollments into existing group and multi-life long-term care insurance plans. The timing will vary based on existing contractual obligations.

As long as existing MetLife long-term care insurance policyholders pay their premiums on time, however, they cannot be cancelled. Plus, they can continue to change their coverage per the terms of their policies.

“MetLife remains committed to our current LTCI (Long-term care insurance) policyholders and certificate holders and will continue to ensure that they receive quality service, particularly when needed most—at time of claim,” says Jodi Anatole, MetLife vice president of long-term care products. “While this is a difficult decision, the financial challenges facing the LTCI industry in the current environment are well known.”

Last year, Allianz Life decided to stop selling nonqualified long-term care coverage nationwide, citing sluggish industry-wide product sales.

Meanwhile Genworth Financial was planning to raise premiums on one out of every four policyholders by 18 percent in January. Genworth gives policyholders who don’t want to pay higher premiums the option to cut the daily benefit amount covered, reduce the coverage term, or cut inflation protection or the elimination period.

In September 2010, John Hancock announced a whopping 40 percent rate hike on most policies. And earlier in the year, Bankers, Conseco, Cigna, Continental Casualty Company, Riversource, MetLife and Union Security Life raised rates 5 percent to 20 percent, according to the New York State Department of Insurance.

It’s nothing new for insurers to raise premiums when they underestimate the number of claims paid and their amounts. A dozen major insurers raised premiums in at least one of the 50 states—California—since 1990, reports the California insurance department. Major insurance companies that so far have not been reported to have raised their rates include New York Life, Northwestern Mutual, State Farm, MassMutual and Aetna.

Financial advisors’ policyholders have some options to lower policy costs if they do get a rate hike. In Florida, which has some of the toughest rules, insurers are required to offer a paid-up policy option should the policy lapse or the policy holder be unable to pay rate increases. However, expect a client to pay more for this rider.

Most other states require that policyholders be eligible for what is called “Contingent Nonforeiture”. If the policyholder decides to let his or her policy lapse within 120 days of a premium increase, he or she may be able to keep coverage equal to the total amount of premiums paid into the policy. To take advantage of this rule, the premiums must have been increased by a specific percentage over the initial premium based on the age at which the policy was issued, according to the National Association of Insurance Commissioners.

If your client gets hit with a rate hike, Charles Farrell, financial advisor and attorney with Northern Star Investments in Denver, suggests these options:
· Consider paying the higher premium.
· Consider reducing other insurance premiums. It might be possible to eliminate or reduce coverage on an old life insurance policy, or raise deductibles on home and auto policies.
· Consider reducing benefits on the long-term care policy. Instead of a $150 daily benefit, for example, a lower-cost benefit of $130 daily might be acceptable. Or consider increasing the waiting period to 180 days from 90 days.

But the question for advisors remains: is it worth the hassle to sell long-term care? Unexpected price hikes could result in a lot of animosity from clients—especially those who are retired and may need it most. But for some seniors, it’s still the best way to plan for possible ill health.

“Reports of the death of long-term care insurance are highly exaggerated,” says Cameron Truesdell, CEO of LTC Financial Partners LLC (LTCFP), Kirkland, Wa. When MetLife announced it would stop selling new LTCI coverage it wasn't the end of the world. The industry is not in decline. Our best days lie ahead."

Truesdell supports this claim with two facts. First, the need for long-term care is huge and growing. According to the U.S. Department of Health and Human Services, at least 70 percent of persons over age 65 will require some long-term care services at some point in their lives. And Prudential Financial Inc. notes that 74 percent of consumers between the ages of 55 and 65, based on a recent survey, are concerned about needing some kind of long-term care.

Second, long-term care insurance sales should increase due to the scarcity of good ways to pay for care--other than private insurance. For example: Medicaid, currently the largest source of long-term care funding, is available only to impoverished citizens or those who impoverish themselves by exhausting their assets.

Health reform's long-term care provision, the CLASS Act, has uncertain prospects. If it survives Republican challenges and becomes operational, it will cover only part of potential care needs, and only for eligible employed people after a five-year waiting period. Self-funding for long-term care works well only for the wealthy who can afford to pay at least $80,000 annually for a nursing home. Care provided by a family member can take the place of professional care, but only at great personal expense, usually by women who sacrifice earning power, freedom, and—often—their own health.

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