Many retirees and near retirees consider long term care insurance as part of their overall planning package. And as you’d guess, I believe they are wise to do that. Oftentimes, they consider purchasing this insurance in their 50s when it is super cheap (long term care pricing is flat up to age 40 typically, then moves higher if you apply after that).
Furthermore, some time ago, a few financial experts came up with age 57 or 58 being the prime age to purchase if weighing the cost/benefit comparison. This I’m sure motivated some to buy it early.
But there are forces at work in the long term care insurance industry that are making this insurance increasingly expensive and increasingly important for the consumer to consider sooner rather than later: rising life expectancies, lower than expected lapse rates and increasing usage are forcing some companies to either leave the business or raise their rates.
The latest casualty: Prudential Financial.
from FA News Online:
Prudential Financial Inc., the second-biggest U.S. life insurer, said it will halt the sale of individual long-term care policies, joining rivals in retreating from the industry…
Insurers including CNO Financial Group Inc. have been burned by coverage sold in the past when they underestimated the number of claims, the cost of care or the life expectancy of their clients. MetLife Inc., the No. 1 U.S. life insurer, said in 2010 it would stop sales of new long-term care coverage, citing “financial challenges” in the business. Prudential said it faces “challenging economics” in the market.
In the past, companies competed on price for the product, as well as on features. Home (community) care became very popular when it was added. The problem with adding features and lowering costs is that if the product ends up being used by many, the insurance company will suffer losses. Some big insurance companies including MetLife, Allianz, Guardian, and now Prudential realize that the numbers are working against them.
Only Thing to Do
For the companies that remain, this business could be very profitable but there’s one thing they have to do – price it right. And for many that means price it higher. Some companies never focused on price competition so they were not forced to raise prices on existing customers but that has happened. Long term care insurance was often marketed with the line “the premiums aren’t guaranteed but the company has never raised premiums.” Then companies did – see this article from 2010 – and policyowners had to accept the premium increases.
Why You grin and bear it
Oftentimes, those who own long term care insurance experience a health issue that would disqualify them from applying for new coverage so when premiums rise, people are often stuck with paying the price increase. Long term care insurance lapse rates (cancellation rates) are low because of this – switching policies later is either much too expensive or impossible from an underwriting standpoint (won’t qualify medically to switch companies). This low lapse rate means that if estimated incorrectly, insurance companies will be paying many more claims than they had initially predicted and they may have to raise rates to compensate.
What This All Means to the Consumer
If one is considering long term care insurance, it may not make sense to have the attitude of “I’ll wait til prices get cheaper” because that’s likely not going to happen. It would be very wise in my opinion, to consider all of your options now and see if it makes sense for you to consider long term care insurance, to compare potential care options if the need arises, and review options that could benefit you.
If you’d like to discuss how long term care insurance could fit into your comprehensive financial planning and work it in with income planning for retirement, call us to schedule a phone appointment (781-393-0021) or fill out our contact form online with questions and we’ll take it from there. Thanks for reading! See our disclosures/disclaimer page for more information and remember, this article is not meant to be planning advice specific to you. This article will be read by many different people from different backgrounds, all with different needs. Call us to see how this information might fit in with you.