New strategies for covering long-term care costs

Certain situations favor hybrids. Simplified underwriting offers a route to coverage for people whose pre-existing conditions make them ineligible for traditional LTCI. That could become more significant as traditional LTCI underwriters toughen up their underwriting standards.
Genworth, for example, now considers not only the health of applicants, but also the health history of their parents, when underwriting policies. Favorable tax treatment also can make a hybrid policy compelling for some buyers.

Dealing With Rate Hikes

The rate hikes on older traditional LTCI policies can be especially unnerving to policyholders. Insurance companies must go to state insurance regulators, and the requests often are eye-popping, running as high as 60% and rarely less than 20%. The final increases negotiated with regulators usually run in the 20% range. (For a historical look, check out this list of rate increases requested by insurers over the past few years in Iowa, posted at the state’s insurance division.)

Rate hikes don’t have to be a disaster for policyholders. If you are hit by one, don’t panic or drop your coverage. If you’ve had your LTCI for a while, the premium almost certainly is much lower than what you’d pay on a new policy at an older age–even after a steep rate hike. What’s more, the risk that new coverage would be denied due to a medical condition rises with age.

One way to cope with a large premium increase is to reduce your benefits. Your options include cutting back the daily benefit amount or increasing the elimination period. Another option is to cut the length of time that benefits are paid.

Kitces thinks LTCI premiums are stabilizing, mainly because the sharp increases in initial policy prices insulate buyers against the risk of rate shock down the road. Indeed, new policy prices for traditional LTCI have continued to rise; average prices jumped 8.6% last year, according to the American Association for Long-Term Care Insurance.

Kitces is holding to that view despite the tremors being sent through the industry lately by Genworth.

“It’s a bit concerning, overall, but doesn’t change my views around the pricing of policies today,” Kitces says. “To the contrary, Genworth has had such a challenge hiking rates on existing policies that they seem more concerned than ever about trying to make sure they ‘get it right’ the first time, which means charging a premium high enough out of the gate that they won’t need to raise it in the future, or fight with regulators about raising it in the future.”

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