Low Interest Rates Force Long-Term Care Insurance Prices Up

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Prices for long-term care insurance policies jumped between 6 and 17 percent in the past year, according to an industry survey.    

A 55-year-old couple purchasing long-term care insurance protection can expect to pay $2,700 a year (combined) for about $340,000 of current benefits, according to the 2012 Long-Term Care Insurance Price Index, an annual report from the American Association for Long-Term Care Insurance.  The same coverage would have cost the couple $2,350 in 2011.

The steep price rise is primarily due to historic low interest rates and yields on fixed-income investments, explained Jesse Slome, the Association’s executive director, in a press release. Between 40 and 60 percent of the dollars an insurer accumulates to pay future claims comes from investment returns, Slome said, noting that for every one-half percent drop in interest rates an insurer needs about a 15 percent premium increase to maintain the projected net profit.

The Association annually analyzes what consumers will pay for the most popular policies offered by ten leading long-term care insurance carriers. The study found that the average cost for a 55-year-old single individual who qualified for preferred health discounts is $1,720 for between $165,000 and $200,000 of current coverage. In 2011, the same coverage would have cost an average of $1,480 annually. 
 
The policies the Association priced all include a 3 percent compound inflation growth factor, meaning that a 60-year-old couple buying $340,000 of current coverage today would see their benefit pool grow to $610,000 when they reach age 80.  According to the report, the couple could expect to pay about $3,335 a year if both spouses qualified for preferred health discounts.

The study suggests that it’s more important than ever to shop around for coverage because the range between the lowest-cost and the highest-cost policy has increased compared to the prior year. "For the 55-year-old single policy applicant the highest-priced policy cost almost 80 percent more than the lowest-priced policy," Slome noted. "For some categories, the difference was as much as 132 percent and no single company always had the lowest nor the highest rate, which is why we stress the importance of comparison shopping."  Nearly three-quarters of buyers opt for a 3- to 5-year benefit period, the Association reports.

Policyholders can experience rate rises after they purchase, although long-term care insurers are allowed to raise prices only on a class of policyholders, not on individuals ones, and they must receive state approval for the rate hike.

The complete 2012 Price Index will be published in the Association's 2012 Long-Term Care Insurance Sourcebook. For more information, visit the American Association for Long-Term Care Insurance's Web site.

For an article on how to cope with long-term care insurance rate hikes, click here.

For more on how to reduce long-term care insurance costs, click here.

For more on long-term care insurance, click here.

(This article is reprinted with the permission of ElderLawAnswers.com)