by John Darer CLU ChFC CSSC RSP
The Long Term Care insurance world is changing and in short this involves rate hikes, more limited contracts and stiffer underwriting, on par with life and disability insurance, that are necessitated by the current economic environment. If you are in your 30s or low 40s and think this doesn't concern you? Think again. You have a potential double burden heading your way.
In the last several yeras a number of insurance companies have stopped selling law term care insurance.
In its published 2nd quarter 2012 results, released July 31, 2012, Genworth Financial stated that
- Certain lifetime benefits coverages and limited pay options will no longer be available
- Underwriting was further tightened
- First year commissions to agents were lowered
- Certain discounts were reduced or eliminated effectively increasing average pricing by more than 20 percent on the products impacted.
In addition, the report states that Genworth began filing a new product scheduled for early 2013 release, which will include several transformational concepts such as gender distinct pricing for single applicants and blood and lab underwriting requirements for all applicants. (emphasis ours)
The chilling part
"The previously announced premium rate increase of approximately 18 percent on the majority of older issued policies has been substantially implemented. As of June 30, 2012, the company had received approvals for price increases in 45 states, representing approximately 80 percent of the targeted premiums. In the third quarter of 2012, the company plans to request another round of long term care in force premium rate increases with the goal of achieving an average premium increase in excess of 50 percent on the older generation policies and an average premium increase in excess of 25 percent on an earlier series of new generation policies over the next five years. Subject to regulatory approval, this premium rate increase would generate approximately $200 to $300 million of additional annual premiums when fully implemented. The goal of these premium rate increases is to mitigate losses on the older generation and, on the earlier series of the newer generation which has generated positive operating earnings to date, help offset lower than priced-for returns due to lower interest rates, unfavorable business mix and lower lapse rates than expected".(emphasis ours)
What this means
- Long term care insurance is becoming less affordable and harder to obtain.
- If you do qualify for long term care insurance it may not cover you for as long as you need it.
- If you are in your 30s and 40s you should have a conversation with your parents and ask them if and how they have addressed long term care risk. If you live in the New York City metropolitan area it could cost more than $100,000 annually for assisted living. Long term care is not typically covered by medical insurance or Medicare.
- Children should not be afraid of having the long term care conversation with their parents and parents should not be afraid of having this conversation with their children. Don't put it off!
- Addressing long term care needs of parents and yourselves rightfully should be part of your long term retirement planning, since failure to address this risk area has the potential to impact your retirement savings and quality of life.
- Taken in context with what has already happened with other insurers pulling out of the LTC insurance market, the time to buy long term care insurance is now.
Watch John Darer's video podcast on Long Term Care insurance| Having the Conversation
John D. Darer CLU ChFC CSSC RSP is a member of the American Association for Long Term Care. He has owned long term care insurance since he was 38. His parents and siblings currently benefit from having had "the conversation" and obtaining long term care insurance five years prior to his father's diagnosis with Alzheimer's.