The Problem with Long Term Care Insurance…

…Premium Increases
Long term care insurance has become a staple for many individuals and couples entering their”golden years.” Insurance companies have been rather active in their quest to capture the market of the aging baby boomers looking to ensure that they are cared for in their old age. And, the market is huge. The idea of long term care insurance actually makes a lot of sense for those who can afford it. What consumers didn’t (and don’t) bank on, is that the cost of such insurance can be highly uncertain. The premium payments quoted at the time of sale, may be more of a”loss leader” than a sign of what the insurance will cost you over your lifetime. Take the case of Mr. and Mrs. Vargo who were the subject of a recent Wall Street Journal article. They bought insurance in 2002 from Lincoln Benefit Life, a subsidiary of Allstate Corp with premiums at $3,305. This September they were advised that premiums would increase to $4,868, a 47% increase.

This is becoming more and more common. The Wall Street Journal also reported that John Hancock Financial was seeking an average 40% increase for about 850,000 of its 1.1 million policyholders. The insurer, a unit of Manulife Financial Corp., also stopped sales of new long-term-care plans to employer-benefits programs.

Other companies including American International Group Inc., MetLife Inc. and Lincoln National Corp. have also recently applied for or received approval for rate rises ranging from 10% to 40%.

Why are premiums going up so much? That’s the crazy thing…carriers say it is because “more people used the insurance than anticipated.” Insurance companies are in the business of assessing risk. It’s what they do. It seems much more likely that carriers lured people into the world of long term care coverage by selling the idea of a secure old age with low rates, and then, after collecting years of premiums, raise rates so high that the insurance gets dropped, and they never have to pay benefits. We haven’t seen any evidence of this, but it just doesn’t seem reasonable that insurers could have all made such huge errors in their analysands. You can judge for yourself what you think is going on here. The point is, beware! When buying, or renewing long term care coverage, try to get some assurances that you are dealing with a reputable company. Get a history of premium increases. Inquire about fixed premiums. Inquire about any planned future premium increases, or outstanding requests. Get everything in writing. At a minimum these are the things you need to do to protect your interests.

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