I have a confession to make - I'm guilty of a little insurance schadenfreude.Why? Because for several years, my industry life insurance associates would often dismiss stand alone LTC Insurance because of the well publicized series of in-force unexpected premium increases. We now know that the problems facing the long-term care insurance industry due to an extended low interest rate environment affect all types of products and carriers. Recent articles, such as this one in the New York Times, discuss the problems of in-force premium increases on permanent life insurance policies.
Luckily, I'm able to repress my "inner German" and think about the negative impact these unexpected LTC premium increases are having on the buyers of products. From employees in the federal LTC programs to MetLife and Unum policyholders in Florida complaining at public hearings, policyholders are understandably upset. I'm sure I'm like you - I try to avoid the comments sections of internet news articles. If you had an opportunity to read some of the comments related to LTC Insurance rate increases, you'll often see COMMENTS IN ALL CAPS AND BOLD YELLING TO THE WORLD WHAT A SCAM INSURANCE IS.
Who is going to give these people a hug and help them with the issue? An educated advisor, that's who. Someone who will rationally explain some of the reasons behind the rate increases and some of the options available to policyholders.
First, it helps to understand the reasons for the increases. We've created a slideshare below that discusses some of the reasons for the rate increases - it can help explain that although mistakes were made in pricing, this was not some nefarious bait and switch conspiracy. One of the most important messages to convey is this - people getting rate increases will not pay more than a new policyholder. Translation - although they might not be happy about the increase, they probably made a real good choice and have been underpaying premiums for years.
After learning about why they had an increase, the policy holder needs to make some decisions. In general, here's how they breakdown:
- Take the premium increase. For policyholders who may be unhealthy and near claiming or don't want to reduce current benefits, this might be a good option. Advisors should consider the current cost of care, the current premium cost of long-term care insurance, and other sources of assets to pay for care. Many policyholders, after looking at the options, will still take the increase.
- Adjust benefits to keep premiums similar. Many companies offer policyholders the chance to reduce benefits to keep premiums the same. John Hancock pioneered the concept of the "landing spot" in which the go forward inflation rate would change, for example, from 5% compound to 2.7% compound at the same premium. Because often older policies often included 5% compound, the accrued benefit may actually be more than is currently needed.
- Stop paying premiums and rely on the non-forfeiture benefit (If this benefit was selected). Many policies will allow you to quit paying premiums and maintain the amount that has been paid as an available benefit. However, this is rarely recommended because options 1 and 2 above are almost always better.
Many advisors own policies and are dealing with this issue themselves. They understand that rate increases are a reality of LTC policies and will make recommendations that benefit their client. The issue of LTC rate increases are a problem that advisors are best able to help with.
What about new policies? Download this free infographic to get an idea of why they are more premium stable.