Long-Term Care: What Now? (Wall Street Journal)

Prudential Financial announced last week it plans to stop taking applications for individual long-term-care policies as of March 30, because of uncertainty surrounding future claims and persistently low interest rates. Insurers build reserves for paying claims through investment income, mainly from high-quality bonds. With policyholders making more claims and low yields from bonds, insurers are halting sales, asking state regulators for permission to raise rates for existing policyholders, or both. Premiums collected for policies sold in 2011 increased 4% from 2010, even as the number of buyers dropped 2% to 230,000, according to LIMRA. Mr. Cheung says Prudential policyholders who bought policies between 2004 and 2008 could see premium increases of 20%, pending approval by state insurance regulators. Some options for dealing with the retrenchment: use LCTI to supplement costs, not pay them all; adjust the policy’s inflation protection; be prepared for a tougher approval process; consider buying a deferred fixed annuity.