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Researchers: LTCI Policies Often Lapse

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Long-term care insurance (LTCI) has a reputation for being a product with a low lapse rate, but two researchers argue that the LTCI lapse rate is higher than many realize.

Yong Li of Competitive Health Analytics Inc., Louisville, Ky., and Gail Jensen of Wayne State University have published an analysis of LTCI lapsation in Applied Economic Perspectives and Policy, an academic journal distributed by Oxford University Press.

The study may be the first study from outside the insurance industry that looks at the relationship between LTCI policy characteristics and LTCI policy lapsation, the researchers say.

The lapse rate for any 2-year period between 2002 to 2008 was about 13%, the researchers say.

The 2-year lapse rate started at 14% in the 2002-2004- period, fell to 13% in the 2004-2006 period, and then fell to 12% in the 2006-2008 period, the researcher say.

The lapse rate estimate “implies that only half of today’s LTCI policyholders will still carry LTCI 10 years from now, while the other half will have dropped it,” the researchers say.

The researchers based their anlaysis on data from the 2002-2008 waves of the Health and Retirement Study (HRS), a survey series conducted by the Institute for Social Research at the University of Michigan.

The researchers say they used data from 2002 onwards because, in 2002, the HRS survey participants were”asked about their holdings of LTCI in a way that allows researchers to distinguish between individuals who carry private LTCI insurance and individuals who think they carry LTCI but in fact do not.”

The researchers used an extra question to filter out survey participants who were thinking of Medicare, Medicaid or health insurance when they said they had LTCI coverage.

Higher income consumers and consumers with more expensive, more comprehensive policies were more likely to keep their policies than consumers with less expensive, less comprehensive policies, the researchers say.

Lapse rates seem to be highest soon after consumers have purchased policies, and that might be a sign that the consumers who let policies lapse are feeling buyer’s remorse, the researchers say.


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