The cost of long-term care insurance continued to rise sharply last year, with average prices jumping 8.6 percent, according to the American Association for Long-Term Care Insurance (AALTCI).
That was the average price hike for healthy, single 55-year-old male and female buyers. The male buyer can expect to pay an annual premium starting at $1,060 for $164,000 of potential benefits; the female buyer will pay $1,390 for the same coverage. AALTCI issues a price index every January based on a survey of leading insurers.
Continued low interest rates hurt insurers’ bond portfolio returns and hence their ability to fund claims; that continues to drive the large price hikes, says Jesse Slome, the trade group’s director. “We’ve been in the worst of all possible worlds for long-term care insurance - sustained low interest rates and a great recession.”
The pricing news comes amidst signs of another big trend in LTCI: tougher underwriting standards. Last summer, Genworth informed its sales agents that it has begun considering not only the health of applicants, but also the health history of their parents, in underwriting policies. Genworth now weigh any history of early onset coronary artery disease or dementia in applicants’ parents.
Slome notes that 30 percent to 40 percent of all LTCI applicants are turned down for health reasons, and he sees more of that coming around the bend. “Insurers will stop taking applications from people who already have been turned down once or twice elsewhere. They’ll save millions of dollars in underwriting costs.”
That’s an argument for clients to apply at a relatively young age, if they’re going to want LTCI at all.
If you’re working with clients looking for coverage, here are ways to control costs:
Shop around. LTCI rates can vary considerably from company to company. AALTCI found a wider spread than a year ago between the lowest and the highest available costs for each segment analyzed. "The largest spread now represents a 119 percent difference between the lowest available cost and the highest rate one pays for virtually identical coverage," said Slome.
Reduce coverage. Three years of coverage is adequate for most people who use benefits, with a 90- to 180-day elimination period (the waiting period before coverage kicks in). Another option is to cut back on the daily benefit amount, or the total length of time that benefits will be paid.
Adjust inflation protection. Inflation protection is critical, but it's also a big driver of premium prices. The most popular inflation rider is an automatic 5 percent annual increase. But some experts think 3% provides adequate inflation protection.
Mark Miller is a journalist and author who writes about trends in retirement and aging. He is a columnist for Reuters and also contributes to Morningstar and the AARP magazine. Mark is the author of The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work and Living. He edits RetirementRevised.com.