A 55-year-old considering long term care insurance can expect to pay $709 per year for each spouse if married or $1,095 for an individual policy, according to the 2008 Long Term Care Insurance Price Index.
The calculations are for a policy carrying a $100 maximum daily benefit for up to 3 years.
If purchased at age 65, that same policy would costs $1,342 per year for a spousal policy and $1,999 for an individual policy, according to the index, which is calculated by the American Association for Long Term Care Insurance., Westlake Village, Calif.
Last year’s index showed a 55-year-old married individual buying coverage could expect to pay $665 a year for each partner for the same policy. If single, the annual cost would have been $1,075.
The AALTCI index measures current costs for top-selling LTC policies that offer around $115,000 in current benefits, with protection increasing yearly at a compounded 5% rate. Average prices were for a policy covering home care as well as skilled care and with a 90-day elimination period.
That original $115,000 in coverage would grow to over $305,000 of protection in 20 years, estimates Jesse Slome, executive director of AALTCI.
For a policy offering a $150 maximum daily benefit, the cost at age 55 for each partner would be $1,064 a year and $1,578 for a single individual, according to the 2008 index.
If purchased at age 65, the annual cost of that same policy would be $2,013 for a spousal policy and $2,998 for an individual.
On average, LTC premiums are up about 4% from last year, reports AALTCI.
In recent years, LTCI price increases have ranged generally from 2% to 6%, depending on the type of policy, Slome says.
“The analysis highlights the benefits of obtaining coverage at younger ages and taking advantage of discounts offered to those in good health as well as to couples,” he says.
Slome points to another AALTCI study showing that 51.5% of individuals in their 50s qualify for health discounts, significantly more than the 42.2% of applicants in their 60s who qualify.
“It’s never an economic advantage to wait [to buy the insurance],” Slome said. “Costs do increase from year to year.”
Moreover, a change in health could make it impossible for an individual to qualify for a policy, he says.
Slome points out, too, that individuals sometimes need LTC when they are in their 50s or 60s. “Some 12.5% of new claims filed in 2007 start before the individual turned 70,” he said.
Because of inflation, the individual who waited to buy a policy at age 65 would need a higher level of initial protection than he or she would have needed at 55. AALTCI calculates that a policy offering a $150 daily benefit to a 55-year-old today would require a daily benefit of $240 10 years later, assuming 5% annual compound inflation.
That $240 daily benefit would cost $3,221 annually for a standard policy for each spouse if bought today, AALTCI calculates, or $4,729 for an individual.
Purchased at age 65, the immediate value of a policy’s protection would be about $176,000, assuming 3 years of coverage. At age 75, the value would be almost $450,000, according to AALTCI’s analysis.
A main reason for the increase in premiums for new policies this year is the recent decline in interest rates.
“When interest rates go down, for every 1% they drop, the insurer needs a 10% premium increase to keep its projected return level,” says Slome. “Everyone likes lower interest rates, but they have a reverse impact on long term care costs.”
AALTCI’s projected costs assume that LTC policy premiums remain level over the duration of the policy, which is not guaranteed, as recent rate increases on older policies by a number of insurers show.
For instance, John Hancock Financial Services says it recently filed with all 50 states for increases on lines of business that were mostly sold in the 1990s. It was the first increase requested by the insurer for older policies, outside of a block of closed business it bought from another carrier.
The increases requested by Hancock would average 14%, ranging from 13% on LTC policies it sold in the 1990s and 18% on the policies it purchased from Fortis, a Belgian insurer, in 2000.
Hancock reports that it has approval for only 1 state so far. (At press time, it could not be determined which state had granted the approval.)
Hancock said it could not make an adequate profit on the policies at existing rates because of low policy lapses.
“Over the past few years, it has become clear that some assumptions, particularly with respect to policyholder lapse rates, were inconsistent with the experience we have seen over the same time period,” says a Hancock spokeswoman.
Slome of AALTCI notes that many LTC insurers were surprised to find that very few buyers dropped their policies.
Another recent study by AALTCI, not yet published, found that of 1,000 people who buy LTC insurance, an average 7.8% lapse in the first year, Slome says. In the second year, only 4.9% drop their policies. By the end of 10 years, 689 out of the original 1,000 still have their LTC policies.
In contrast, out of evry 1,000 disability insurance policy holders, 535 would have dropped their policies after 10 years. For individual life policies, 575 would have let their policies lapse after 10 years.
Genworth Financial Inc., Richmond, Va., also cited low lapse rates last July when it filed for rate increases ranging from 8% to 12% on most of its older LTC policies in all 50 states and the District of Columbia.
So far, 46 states have granted at least a partial approval of the requested increases, Genworth reports.