September 23, 2016
Many of you are asking me what to do when you receive a rate increase on your long-term care insurance policy. You know my advice for years has been to not buy long-term care insurance unless you can afford a 50% rate increase in your lifetime. I never thought I would be discussing a 126% rate increase which is how much some Federal LTC Insurance Program (FLTCIP) policyholders are facing, with an average of 83%. The Federal program policyholders have to make a decision by September 30th so that’s why I’m writing this blog now.
How could this happen? This decision was based on four main things:
1) Actual claims experience – the most recent claims study said women who need LTC longer than a year need an average of 4.7 years of care, whereas men need only 3.8 years. The “country-club” assisted living facilities have made this longer. People live longer when they are happy!
2) The demographic reality that people are living longer, and the longer people live, the more likely they are to file a claim.
3) Low lapse rate which means most people don’t cancel their policies, even when they get rate increases.
4) The low interest rate environment we are in has reduced present and future investment income on the money held in reserve to pay claims.
John Hancock, the carrier behind the Federal program, believes the new rates will be enough to pay future claims and doesn’t anticipate another rate increase but they aren’t going to guarantee that of course.