As the long-term care insurance industry continues to suffer—a challenge that won’t likely end soon, given ongoing increases in health care costs and continued low interest rates that make it difficult for the insurer to generate a return on premium investments—planners and clients have both become increasingly skeptical about long-term care insurance.
At best, prospective policy owners feel compelled to buy far less coverage than they can afford, just to leave room in case premiums rise in the future, given the quantity of ugly premium increases on existing policies that have occurred in recent years. Yet the reality is that like many industry trends, from low lapse rates to low interest rates to claims patterns were a surprise relative to what insurance companies expected 10 to 15 years ago, they are known facts today.
Accordingly, even the base cost for a new long-term care insurance policy has risen dramatically over the past decade. However, higher pricing—adjusted for the realities of today’s marketplace—actually means that while the pace and severity of premium increases on old policies has risen, the risk of premium increases on new policies purchased today may actually be declining. Are planners and their clients becoming most concerned about long-term care insurance premium increases at the time they are actually least likely to occur?
The inspiration for today’s blog post is a series of ongoing conversations I’ve been having recently with some fellow financial planners regarding the viability of long-term care insurance, and in particular about how to craft appropriate long-term care insurance recommendations in light of the industry’s current track record for raising premiums. “I’m not even certain what’s safe to recommend anymore,” a colleague noted, “when companies can come back and raise premiums by 90% after the fact. How can you be certain the policy you recommend today will even be affordable in the future?”
“But is it really appropriate to assume 90% increases on new long-term care insurance policies from here?” I replied, “Or is the reality actually the opposite—that today’s premiums are actually less likely to rise in the future?”