If you’ve spent much time as an LTCi agent, I’m sure you’ve heard, and even experienced long-term care insurance policies being subjected to premium increases over the years. Many people still have a bad taste in their mouths from the experience, but did you realize that long-term care policy has safeguards today that provide additional protections. To understand how the mistakes that led to spikes in premiums in the past have been fixed, first, you’ll need to understand how policy forms are structured.
Much like the make and model of a car, where the auto industry releases annual updates, newer cars are required to adhere to the most recent regulations. Every time a new policy form is filed, approved and released for sale, it must be priced with current claims data and,
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because of that, today’s policies are priced more accurately. An example close to home comes to mind. In January 2003, Kansas enacted LTCi regulations. When a rate increase was requested, insurance companies were able to include normal profit levels into the rate increase.
After January 2003, under the new rule, insurance companies were required to decrease profit levels in their pricing to a cap pre-determined by the new regulation. Also, under previous regulation, insurance companies didn’t have to factor a, “margin for error”, into their pricings. Under the new rule, insurance companies are required to include a “cushion” in their pricing with the goal of trying to avoid future premium increases. One last important takeaway; under the old rule, insurance companies didn’t need to certify the accuracy of their pricing assumptions.
Now, insurance companies are required to have a qualified actuary certify that no premium increases are anticipated over the life of the policy.
All this information will never lessen the sting of a premium rate increase, but the insurance companies are offering “landing spots” in order to bring premiums back down in line with current premiums. The landing spots are allowing policyholders to keep their coverage by reducing benefits and still have coverage when they need care.
I have seen many forms of rate increases: big percentages, huge percentages, smaller percentages, increases with stability options, paid-up options, and even multiple year increases. My advice with any premium rate increase is to not panic. There are always options and, when you work with your agent, I am certain we can come up with solutions that work for each specific family and their circumstances.