Bad Advice to Lower Daily Benefit to Lower LTC Insurance Premium

Response to Terry Savage article “Long-Term Care-LESS”,, March 19, 2012

The 90% rate increase by John Hancock is not a responsible rate increase in my opinion. They were asleep at the wheel, not realizing that was coming. But in all fairness – this article makes it sound like long-term care insurance rate increases are all the fault of the insurance companies.  Not so. Insurance companies can’t control the low return on invested reserves or how long people are living and they couldn’t have anticipated that most people (98%) would keep their policies in force.  Plus, there are still many companies that have never had a rate increase.   Even the last all-cash plan, MedAmerica, just had the first rate increase in 2011, after offering long-term care insurance since 1987.  Tell me another kind of insurance that can say that! And Prudential is still in the group LTCI market – they see the opportunity since about half of all LTCI policies have been sold in the workplace for the past four years (LIMRA).

But what the insurance companies must realize is that an average of 5% compounded annually is still the best inflation factor for the cost of long-term care, which is why the advice in this article to use 3.5% as the growth factor for LTC costs is bad. If the companies don’t realize this, then that will be their fault. Costs have grown from $60 a day to $200 a day since 1988, so you can figure it for yourself. How do I know this? Because I entered the long-term care insurance industry in 1988 so I’m giving you first-hand knowledge on this!  Think that inflation rate won’t continue? Think about 80 million baby boomers entering into their long-term care years combined with the tremendous shortage of caregivers. Only about 5% of baby boomers have long-term care insurance so you can see the writing on the wall with that kind of demand on the system.

Finally, it’s very bad advice to drop the daily benefit to lower premium. Better to reduce the benefit period. Why? Because if you can’t make up the difference at claim time, you go on Medicaid right away and that’s not why you bought long-term care insurance. So the decision priority is to have enough daily (monthly) benefit with the right inflation benefit for your age and the area you intend to retire in. Then choose the benefit period/benefit maximum which determines how long benefits will be paid for you. Also buy a Partnership plan if at all possible to protect assets equal to benefits paid out if you do have to apply for Medicaid. Most states offer them:

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