Long Term Care Insurance Rates Vary Significantly - How To Find The Best Cost
When buying a car, you know it's smart to shop around and negotate for the best price. Well, when it comes to buying long-term care insurance, you can't negotiate but it's certainly smart to make sure you are getting the best rate.
Before giving you the ammunition (information) to help you get the best long-term care insurance rate, it's important to understand who we are.
The American Association for Long-Term Care Insurance was founded in 1998 as a non profit educational organization. WE DO NOT SELL long-term care insurance. Our primary mission is to provide accurate, relevant information to help you make the right decision for yourself and your family.
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Why do long term care insurance rates vary by as much as 92%?
A 55-year old single man or woman buying long-term care insurance can pay $1,325 a year (2011 Long-Term Care Insurance Price Index). Or, they can pay as much as $2,550 a year for virtually identical coverage.
And since it almost never pays to switch from one insurer to another, it's important to get the best long term care insurance cost from the very beginning. Switching almost never pays because long term care insurance rates are based on your age when you first apply. Once you reach your late 50s and 60s, those rates tend to increase from 6% to 8% for each year you wait.
But, what accounts for one price being almost double the other? It's true that your cost for long-term care insurance will be based on such factors as your age when you apply, where you live (care costs do vary and states mandate all kinds of things that can add to costs -- bless their hearts). But the comparison above was for viryually identical coverage -- same age, same location.
So, here's why rates vary.
Each long-term care insurer establishes their own pricing assumptions which project the number of people who will go on claim and what those costs will be. Companies who have been in the business for several decades have acquired quite a bit of experience. Some like John Hancock and Genworth have over a million long-term care insurance policyholders. Size can matter in terms of gaining insight. But other leading insurers like Prudential, Mutual of Omaha also have extensive experience -- so size alone isn't criteris upon which to base your decision.
Each long-term care insurance company sets their own profitability targets. In other words, one company may simply hope to earn a lower return from every policy sold. Others hope to earn more and they price accordingly. Unfortunately, that's not something the agent can tell you when you are looking into this protection.
Something an agent can tell you is when was the insurance company first started selling this particular policy in your state. That will give you a sense of when the policy was priced. This is quite important for several reasons. Older policies may have been priced when investment returns, particularly interest rates, were higher than they are today.
Research conducted by the American Association for Long-Term Care Insurance found that for over one percent decrease in interest yield on the premiums paid by policyholders, an insurer needs a 10 percent rate increase to maintain the projected profitability. Or, more simply stated, if the particular policy you are being shown was priced when interest rate returns were projected to be six percent a year and today they are three percent, the insurer has been losing money on every policy sold. The question is will they be seeking a rate increase to make up the gap. Should that happen, your current savings could be quickly wiped out and you could find yourself paying more than you would had you bought a policy that used more current pricing.
Older policies may have also used older "lapse rate" assumptions. The insurer projects the percentage of people who buy their long-term care insurance and will "lapse" or drop their coverage. People lapsing coverage really isn't their concern. It's how many people actually keep their policy in force until it is time to begin drawing claim benefits. Older policies tended to use higher lapse rate assumptions. If you sell 1,000 policies (just an example) and expect to have 500 still in force in 10 years ... BUT you have 600 ... there will be that many more claims. More claimants means more dollars out the door and that's a primary reason why some older policies are seeking premium increases today.
Each company has pricing sweet spots and they can vary considerably. Some have more attractive pricing for couples than for single individuals. Their experience shows that with couples, the spouse often initially provides care thus keeping a cap on claim costs. Others favor those who apply in their 50s. As we've said, it really pays to compare.
Each company also determines what discounts they want to offer and how large the particular discount will be. Some offer discounts to couples when only one spouse or partner qualifies for coverage. Others will offer a more limited version.
And finally, some insurance agents can only sell the long-term care insurance policies available from their company. Those companies tend to have higher rates. Why? Because their agents have no option! Sell "Brand X" or sell nothing at all. Insurance 'brokers' have access to policies from multiple insurers. They can shop the market for you and that can be a considerable advantage.
All of these variables make it critically important that one shops the market for this important protection. Finally, understand that not all insurance producers are the same. That doesn't make one better than the other but it is important to ask how many and specifically which companies they are looking at when working up a quote for you.
ACT NOW TO GET THE BEST LONG-TERM CARE INSURANCE RATES
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