If you are an Employer in the Washington area, and wish to get information on what the new Federal government LTC program looks like for you in 2011 and beyond, feel free to request on our website.

October and November have proven very interesting regarding the #2 and #4 LTC insurance companies “moving to the sidelines” around Employer LTC programs. This is telling a story, and I can now see the 4 important lines that these Carriers are looking at when making these moves.

This will also prove a challenge with less LTC carriers to offer Employers with. Let’s stay tuned to see what other changes are coming!

I have found this question is posed by those that are “wrestling” with the principle of insuring for their potential EXTENDED CARE risks.  The answer does lie below in this article where the State Dept. of Insurance has records of historical rises.  Make sure and look at the PERCENTAGE increase over the life of the product.  We find minimal increases amongst the well-established Carriers for ESTABLISHED clients.

For the “LTC wrestlers” (those that keep wrestling with LTC as a strategy)?  Yes!  Those premiums will continue to adjust over time for people that never really get that application in, and then when they are 65+, the premiums are very “healthy” and then they wonder how it got so expensive.

Will My Long-Term Care Premiums Go Up As I Get Older?

Source: NASDAQ
Date: 8/23/2010
Copyright: NASDAQ

This is a very common question…and a very common concern regarding long-term care insurance.

Long-term care premiums do not work the way your automobile insurance does. Just because you are getting older or are diagnosed with an illness does not mean your long-term care premiums will go up.

In fact, your premiums can’t go up just for you. Long-term care premiums can only go up for an entire class of insureds and only after the insurer can prove to the various state insurance regulators that their claims for a specific class have varied significantly from actuarial expectations. In other words, if they raise premiums, it must be for cause and for an entire class of similar policyholders, not just you.

So, there is the possibility your premiums may go up, over the very long time period you would expect to own a long-term care policy. In fact, it is not unlikely that they will go up. But you wouldn’t expect them to go up every year, like a health insurance policy might. On the other hand, they may never go up. You never know. It just depends on the claims.

Obviously, no one wants to pay more. The good news is there are a few things you can do to try to limit the chances of an increase in your long-term care premiums. The biggest is to purchase your policy from an insurer that is financially strong and has a large risk pool.

There are three primary ratings companies that evaluate the financial strength of insurers. They are AM Best, Moody’s and Standard and Poor. The ratings issued by the ratings agency are important because they indicate the insurers ability to pay claims. Financial strength also allows an insurer to absorb more variance in claims experience than a firm with a weaker financial position.

The other issue is the size of the risk pool. In other words, how many people is that insurer insuring for long-term care? When it comes to avoiding premium increases, more is probably better. That is because insurers rely on something called the Law of Large Numbers.

The Law of Large Numbers says the larger the sample size, the less variation there is likely to be from the theoretical expectation. It is that theoretical expectation that your premium was originally based on, so all things remaining equal, a larger risk pool will tend reduce the chances of a premium increase.

Just to give you an idea, in 2007, according to a survey done by Business Insurance magazine, Genworth, the largest long-term care insurer, had 1,078,154 total long-term care policyholders. MetLife, the second largest, had 693,373. By the time you get down to number 10, there were only 30 thousand policyholders.

Remember that just because an insurer has a big brand name, or a big presence in your local area, doesn’t mean they are big in long-term care. An insurer could offer you a great policy, at a very reasonable price – maybe even cheaper than anyone else – but because they are only insuring you and your two neighbors, when Joe down the street has a stroke, all three of you are likely going to experience a huge increase because … you ARE the risk pool.

This is an exaggeration, of course. But you get the idea…

That insurer may be the absolute best choice for your car or tractor or even your life insurance, but not necessarily for your long-term care insurance. Don’t just rely on a brand name or the agent down the street. Do your homework.

Again, just to be clear, financial strength and a big risk pool can’t guarantee that your premiums won’t go up…nothing can. Nor is a company with a lower rating and fewer policyholders certain to have an increase. But insurance is, at its heart, an exercise in probability. And odds are, in my opinion, a strong company with a large risk pool is going to be less likely to have to go back to the states and and ask for a huge rate increase because they underestimated the level of claims.

If you are curious and you would like to see how your insurer, or one you are considering, has handled premium increases in the past, most state insurance regulators publish data showing which companies have raised their long-term care insurance premiums during the last 10 years, the amount of the increase and which states were affected.

Long-term care insurance is an absolutely integral part of an comprehensive retirement plan. Its job is to protect your nest-egg from the potentially devastating impact of a large long-term care claim. While knowing how much to budget for long-term care premiums, over time, is definitely a concern, it is not nearly as big a concern as how to budget for long-term care expenses when you have no insurance.

When a client asks me how to project long-term care premiums forward, in their retirement expense projections, I assume that premiums will increase over time by something similar to the rate of inflation. I feel pretty comfortable with that as a planning assumption, again provided the insurance is through one of the big five or six long-term care insurers.

The caveat to that is, of course, that it is just our best guess. The other caveat is that the increase, if and when it comes, is probably unlikely to come gradually over time, like the increase in the price of milk, for example. Rather it will more likely come in one lump sum or even in stair steps.

The key is not to be lulled by the fact that you haven’t had an increase in ten or fifteen years. It may still be just over the horizon. And when it does, the number may even be insultingly large, like 30%. But if you have had that policy for 20 years, remember that 30% increase works out to only 1.3% annually.

My best advice is to go ahead and buy long-term care insurance early, to protect against uninsurability. Don’t hold off because you are worried about paying for something you aren’t going to use. That is the nature of insurance. Better to have it and not use it than to not have it and need it.

Do what you can to limit future price increases but build them in the budget anyway. If they never come, count your blessings. It’s gravy. But, if ten or twenty years down the road, you are subject to an increase, proper planning and budgeting will hopefully make it a non-event.

No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice unless specifically stated as such. All investments involve risk including possible loss of principal.

This is a test blog post.