Long-Term Care Insurance Costs Rise

Just when America was warming up to the idea of purchasing long-term care insurance to protect family assets from the devastating costs of custodial care, the three largest insurance companies have caused a stir in the market by raising prices on existing policies, not just on policies to be sold in the future.

Long-term care insurance policies are sold with the “assumption” of level premiums that won’t increase much over the years. That’s the incentive to buy when you are young, healthy, and prices are lower. Insurers have the right to go to state insurance commissioners to seek approval of a price increase on everyone who bought a certain policy, if claims significantly exceed expectations.

When insurers first created long-term care policies, it was hard to predict how their costs would turn out. But as insurers gained more experience in the last 10 years, it has been expected that the risk of price increases on the more recently issued policies would be slim and that any premium increases would be minimal.

Those who bought early to “lock in” lower prices are now being surprised by significant premium increases.

In the last year, Genworth requested increases ranging from 8 percent to 12 percent on some policies already owned by its customers. John Hancock announced a 14 percent increase in some policies in May. Nearly all of these policies were issued before 2000. But last week, MetLife announced it will raise annual premiums an average of 18 percent for policyholders who were younger than 70 when they purchased their policies from 1998 through 2005.

In effect, the insurers are admitting they made a pricing mistake. The only other explanation is that they priced policies artificially low to compete for business.

David Acselrod, MetLife vice president, long-term care and critical illness insurance, said: “Quite simply, we expect to pay out substantially more in claims than we originally anticipated. Some of the assumptions that drive LTCi pricing include policy lapses, interest rates, the number of people requiring care and the duration of care, to name a few. Following a review of our experience, we concluded that we had to make changes to ensure that we are pricing the products appropriately on behalf of all of our policyholders.”

Source:suntimes.com