A recent advisory newsletter alerted me to the fact that the Federal Long Term Care Insurance Program (FLTCIP), which covers Federal Employees, will be requiring premium increases of between 85-123%, in order to maintain current coverage. There are options available to reduce the total monetary coverage, either by reducing the compound inflation on the daily benefit payable, or to reduce the daily amount payable, etc.
The author of a recent article, herself an FLTCIP participant, noted that in order to keep her premiums from going up $1377 annually, she’d have to significantly reduce her inflation protection from 5% daily benefit growth down to 2.2%. Given that compound interest is one of the “8 wonders of the world”, you can see she would be giving up a large pool of resources to help pay for care should she accept a lower inflator.
How did this happen? As the author cites, in the 1990’s more than 100 companies sold Long Term Care (LTC) insurance. By 2014, less than 15 companies were selling stand-alone products. One of these insurers just recently announced it was no longer writing individual policies. Basically, claim frequency and duration have been higher than anticipated. Lapse rates (dropping your policy by not paying the premium) have hovered at 1% instead of 6-7% as previously assumed. Investment performance of the carriers has been lower than anticipated in light of the current interest rate environment. This simply means the product was initially underpriced versus the risk involved.
What does this mean to you? Products today have made the necessary corrections to more accurately predict correct pricing and the underwriting process has become more challenging. Procrastination about pursuing appropriate funding strategies for extended health care can limit the options available when health events arise. Put simply, when the planning light bulb comes on, your health might not allow entrance into the club of existing LTC policy holders. Recently, insurers’ claims history shows that women make up 2/3 of the claims, resulting in higher premiums for women in new business cases.1 We can show clients the modest impact of LTC insurance premiums on their net worth as well as the impact of an uninsured, extended health care event. This can help clients visualize the rationale for taking steps now to protect family assets. Contact your current PSG advisor or drop me a note at Nseagle@psgplanning.com and I can guide you through the solution process.
Article Source: “Long Term Care Insurance: What Should You Do About Rate Hikes”, by Tammy Flanagan, Govexec.com site, July 28, 2016
1 Genworth Life Insurance Company Claims History, December 1974 – December 31, 2013
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Neal has over 20 years’ experience in the financial services industry. Formerly the Regional Director of Investments for Sagemark Consulting/Lincoln Financial Advisors, Neal supported over 75 advisors throughout the Mid-Atlantic Region with investment planning case design. Neal focuses on personal financial planning, business succession, and retirement planning implementation. He works closely with local attorneys and accountants in support of the financial and estate planning services they provide to their clients. Neal is FINRA series 7 and 65 registered, and Life and Health insurance licensed. His undergraduate degree was received from James Madison University and Masters of Business Administration from Loyola College in Baltimore, MD. He is currently studying for the CERTIFIED FINANCIAL PLANNING™ certification.
Having been widowed in 1998, Neal has first-hand experience and emotional insight with many of the facets of the planning he recommends. He currently resides with his son in Montgomery County, MD.