Making The Case For Limited Pay Long Term Care Insurance
First of Two Parts
More insurers are now offering Limited Pay (LP) Long Term Care Insurance and sales are increasing.
Recent in-force rate increases have underscored the value of LP schedules for the consumer, and the regulatory environment for such schedules has become significantly more favorable.
Based on a consulting project I did for a consortium of LTCI companies, 13 jurisdictions were identified that restricted LP LTCI policy configurations in the past. Those jurisdictions would have allowed consumers to purchase a lifetime premium LTCI policy with a configuration that they would not have allowed for a LP LTCI policy.
Of those 13 jurisdictions:
12 have reduced their restrictions.
Nine no longer have any restriction at all.
Two require a shortened benefit period nonforfeiture option for LP policies.
One requires a cash refund on LP policies with five- to 10-year premium periods.
Only one restricts single premium (SP) LTCI (it does not allow lifetime benefits on a SP LTCI policy, but may review that decision in 2003).
There are good reasons for regulators and the industry to work together to expand the market for LP LTCI. However, there are valid regulatory concerns. It is, therefore, important for regulators to learn about this market and insurers practices. Some states require insurers to answer special questions when filing their product for approval. A list of questions is contained in Part 2 of this article.
The national debate continues about the potential of LTCI to help solve our approaching LTC funding crisis. Many people feel LTCI is critical to avoid escalating budget deficits at the state and federal levels. Others feel LTCI is not affordable enough to play a significant role in the financing equation. Clearly, efforts to make LTCI affordable and ethical efforts to broaden the market penetration of LTCI should be encouraged.
A key goal is to spread the availability of LTCI through the worksite, as happened for acute medical insurance. LP LTCI is particularly attractive in the worksite market and will grow more important as worksite sales expand. For multi-state employers, consistent policy design in all states is a significant issue.
. In addition to affordability at the time of sale and expansion of LTCI awareness, there has been much focus on LTCI rate stability. Significant rate increases on in-force LTCI policies continue to be announced, burdening policyholders and raising concern about the industry and the future affordability of LTCI.
Premium increases on existing business can be both a necessity for, and a threat to, the industrys success. Policyholders who bought LP LTCI in the past will continue to be rewarded for their wisdom.
Appropriately concerned about such rate increases, regulators have worked effectively with LTCI industry leaders to produce new model regulations that will contribute significantly to improved rate stability.
The risk of significant future premium increases on business being issued today seems to be greatly reduced, not just because of the new model regulation but also because pricing now reflects more conservative lapse assumptions and a lower interest rate environment. Consumer, agent and regulatory backlash against companies with past rate increases all are contributing to more careful initial pricing. Underwriting improvements, to the degree not converted into lower prices, help to make pricing more sound than has been true in the past.
Nonetheless, the risk of significant price increases remains and is likely to be perceived, by the buying public, to be a bigger threat than it really is. Thus, it behooves LTCI industry leaders and regulators to continue to take steps that will allow consumers to be more confident when purchasing LTCI.
When LTCI policies are guaranteed to be paid up in a specified number of years, they offer price stability that appeals to less affluent people as well as the more affluent. People will stretch their budgets to purchase LP LTCI in order to have such price stability. Those on limited budgets sometimes purchase two policies, one on a 10-pay program, for example, and the other on a lifetime payment approach, to tame the risk of future price increases.
. LTCI policies can help solve our nations LTC financing crisis and the needs of care recipients only if the policy is still in effect when LTC becomes necessary and only if someone knows about its existence and submits a claim.