Recent reports about Long-Term Care Insurance premiums can be very misleading and misrepresent the truth, according to Matt McCann a nationally known expert on Long-Term Care Insurance and Long-Term Care planning.
"By any kind of common sense measure, Long-Term Care Insurance premiums are not skyrocketing and the industry is not only stable but very healthy. Interest by consumers for Long-Term Care planning has never been higher. The fact is Long-Term Care planning has become a key part of overall retirement planning and LTC insurance is easy and affordable asset protection," McCann said.
McCann says today's policies are priced appropriately based on rate stability regulations. While old policy series have had increases those increases were based on older plans that were priced well before the interest rate crash and before the rate stabilization measures.
"Yes, old plans were not priced appropriately based on the liberal underwriting and in many cases unlimited benefit plans they were selling at that time. Even with increases the premiums are still substantially less than if the person bought the same level of benefit today. Many people are over-insured. Many of these old plans were UNLIMITED benefits with 5% compound inflation. When you combine this unlimited benefit with a low initial premium with loose underwriting standards along with the interest rate crash you can understand why the problem occurred," McCann noted.
However, McCann says many people never actually pay a higher premium on these old policies. He says that many people take lower inflation options or going from unlimited benefits to a large pool of money in lieu of paying a higher premium.
This has no impact on plans that have been on the market since the implementation of rate stability regulations which started in 2004. With the new rules in place insurance companies have had to price products more conservatively although they remain affordable.
"Underwriting became much more scientific and conservative. Pricing also considers the extreme low interest rate environment which is a primary pressure point on Long-Term Care Insurance premiums. Premiums also consider that consumers do not lapse these policies. Even with the increases on the old policy series going back decades, the lapse rates have been nil. This indicates two things, consumers understand the importance of planning for the financial costs and burdens of aging and premiums remain very affordable," McCann noted.
The National Association of Insurance Commissioners passed the Rate Stabilization Model Act in 2001, and 41 states have adopted a variation of this Act. The first new rate stabilized products were made available to consumers from 2004 and 2006 depending on the insurance company. Companies are required to price more conservatively and are penalized should a rate increase be needed. The direct result is appropriate pricing which protects consumers from large future rate increases.
"An insurance company can not ask for increases on current product series policy holders based on the mistakes of the older plans. This provides substantial peace-of-mind for those who are planning today. It is also not easy to raise premiums; the insurance company must show a substantial need based on actuarial data and have it based on a class basis only. This means they can't increase an individual alone or product series that are priced correctly to make-up for problems with the much older plans," McCann said.
Fewer policies are being sold overall, however McCann says this has more to do with fewer insurance agents and financial advisors selling it.
"Since underwriting is tighter and things like the federal partnership program exist which require additional certifications, fewer agents want to deal with it. However, business for true LTC specialists are going through the roof. People like me see the huge amount of consumer interest and as a result the increase in business. Consumers are very interested in finding an affordable plan to address the costs and burdens that come from longevity," McCann explained.
McCann says specialists like him are speaking to primarily consumers ages 45 to 65. He says these people know the impact long-term care can have on a family because of personal experience with parents or other family members.
"They discover that today's LTC insurance is very affordable. It safeguards their retirement accounts (401(k) IRA SEP 403(b)) while making their aging issues much easier on their family. Premiums are based on several factors including age at application, health and amount of benefits being applied for. As clients are younger and healthier many of my clients are paying under $130 a month some even $100 a month for partnership certified plans," McCann said.
He explains that plans are custom designed based on the consumer's specific situation and concerns. Articles which discuss current premium averages can also be misleading.
"The amount of benefit a consumer should apply for is based in part by where they live or expect to live once they retire. The cost of care can vary dramatically depending on location. The cost of care is higher on the East and West coasts and is generally much less in the South and Midwest. Averages can be misleading since it includes premiums from policies purchased from high cost states and many of those have large populations," he said.
McCann notes that some insurance agents and financial advisors with little experience in long-term care often design plans which are much larger than what is required as they don't understand how policies actually get used.
"This is why consumers should work with true Long-Term Care Insurance specialists who understand how underwriting, policy design and claims work and can make the appropriate recommendations," McCann said.