The Reasons Behind Long Term Care Insurance Rate Increases
For LTCI specialists pursuing long term care insurance agent commissions, the recent price hikes can be considered as a major pain point in landing sales. Almost all insurance companies have demanded long term care insurance rate increases on both old and new policies they have sold. These constant premium hikes are quite significant, ranging from 10-25%, but other policyholders have gotten notices for as much as a 40-90% increases in their premiums. As a natural reaction, a lot of policy owners started having doubts about long term care coverage and some have opted to drop their plans altogether. The insurance industry is also suffering from these rate increases because it’s getting harder to sell new policies and to generate income to pay the benefit claims. The confusion and shock as to why insurers are demanding such steep price increases have left most people skeptical about the intentions of most insurance companies and whether long term care insurance is even going to be affordable in the future.
As an agent, though, you shouldn’t be left out in the dark when it comes to price hikes – premium increases are not done on a whim. A closer look at the reasons why premiums need to be raised would show that there are hard realities that are pushing the prices up.
The Relationship of Interest Rates and LTCI Premiums
The words “interest rates” appear in almost every article written about long term care insurance premiums. That’s because these two concepts have an inverse relationship. When interest rates are down, insurance companies need to raise their premium charges to maintain their income and make sure to have the funds necessary when policyholders claim their benefits.
Through this inverse relationship, one can infer that the current low interest rate is a key factor for the price hikes. To explain the connection in a simpler manner, insurance providers make their revenue when they collect premiums from their policyholders. They would then invest the collected money on treasury bills and other safe investments that can give them more earnings in the future. However, as interest rates plummet (due to varying factors, such as recession), so too have the projected income on those long term care policies.
The point is, insurance companies need to survive to provide the proper and necessary services for their clients. And interest rates are beneficial in making this professional and required service possible.
Lapse Rate and Long Term Care Insurance
When long term care insurance was introduced back in the mid-1970s, insurers treated it just like any other insurance type—meaning they assumed it would also have a 5% lapse rate. A lapse rate is a percentage of buyers who are expected to drop their policies or voluntarily allow them to lapse.
Cancellations could be for a number of reasons, such as a change of circumstances, loss of interest in the policy, or a change in their financial situation. At present, the lapse rate for most long term care policies is around 1-2%, significantly lower than the assumed 5%. The implication is that insurance companies would have to face more future claimants than they expected, especially for policies they sold during the late 1990s to early 2000s.
Therefore, it’s not only the rise of long term care costs and interest rates pushing the prices up but also the fact that there are just a lot more people holding on to their policies and using their benefits. With LTCI plans relying on lapses, the majority of insurers in the market now need to raise the prices because more people are keeping their plans in force than what they initially estimated.
What Are Your Options?
Unlike what most policy owners think, long term care insurance rate increases do not compel anybody just to accept the new rates and pay up. Insurers have voluntarily offered options on how people can maintain their current rates by adjusting certain details in their policies, such as the daily benefit amount or the benefit period. The best way to deal with the rate hikes is to consult with long term care specialists and financial advisers.
For specialists still in the dumps on how to help their clients, reliance and continuous product and industry education is needed to provide the best aid possible for policy owners. Emotion is also a key factor to consider, with the majority of clients feeling let down with increasing prices and bleak images of the future. Focusing on the benefits and positive factors of coverage is one step to help customers know that their decision to apply for a plan is not only needed, but the best choice for their future. Additionally, make sure that you have the proper resources to continue to be the best in the field – LTC commissions are available to help you keep floating (and eventually, winning) in this industry.