Low Interest Rate Environment Fuels Higher Rates
A 55-year-old couple purchasing long-term care insurance protection can expect to pay $2,700-per-year (combined) for about $340,000 of current benefits which will grow to over $700,000 of combined coverage when the couple turn age 80. According to the 2012 National Long-Term Care Insurance Price Index published by the American Association for Long-Term Care Insurance (AALTCI) prices for long-term care insurance policies currently being offered are between six and 17 percent higher than comparable coverage a year ago.
“â€œInsurance prices have increased as a result of the historic low interest rates and yields on fixed income investments,” said Jesse Slome, AALTCI’s executive director. Between 40-and-60 percent of the dollars an insurer accumulates to pay future claims comes from investment returns. The Association annually analyzes what consumers will pay for the most popular policies offered by 10 leading long-term care insurance policies. The study found that the average cost for a 55-year old single individual who qualified for preferred health discounts is $1,720 for between $165,000 and $200,000 of current coverage. In 2011, the same coverage would have cost an average of $1,480 annually.
In addition to across the board increased rates, the Association found that the spread between the lowest cost and the highest cost policy had increased compared to the prior year. “For the 55-year-old single policy applicant the highest price policy cost almost 80 percent more than the lowest priced policy,” Slome noted. “For some categories, the difference was as much as 132 percent and no single company always had the lowest nor the highest rate which is why we stress the importance of comparison shopping.”
The Association study examined prices for single individuals age 55 as well as couples, ages 55, 60 and 65. According to the report, a 60-year old couple purchasing the same level of protection ($340,000) could expect to pay about $3,335 -per-year if both spouses qualified for preferred health discounts. The preferred health discount would save them approximately $500 compared to standard health rates and are a good incentive to act at younger ages, Slome points out. “The available benefit pool for the 60-year-old couple would only grow to about $610,000 when the couple turns 80,” Slome notes. “To have future coverage of $700,000, equal to what the 55-year-old couple would have, they will have to buy a higher, more expensive policy,” Slome explains.
The Association priced policies that included a three percent compound inflation growth factor. “You want the value of the benefit you buy today to grow to keep pace with rising costs,” Slome noted. A policy valued at $170,000 for each policyholder would grow to roughly $300,000 in 20 years. Married couples have the option of buying policies with a ‘shared care rider’ meaning the combined benefits can be used by either spouse or spouse or split between them. “For roughly 15-to-25 percent more, instead of having having access to a benefit pool of $350,000, either spouse has access to a combined pool in excess of $700,000,” Slome said. The ability to purchase a more affordable shorter duration policy but have access to a much larger combined pool of dollars is easy to explain and of great value to the buyer.
“Over 70 percent of people today buy a 3-to-5 year benefit period,” said Larry Moore, Director of Marketing for American Independent Marketing, a leading national marketer. “When you factor in discounts available to couples, good health discounts and some of the lower-cost inflation options, long-term care insurance can be far more affordable than many people think.”
The complete 2012 Price Index will be published in the Association’s 2012 Long-Term Care Insurance Sourcebook. For more information, visit the American Association for Long-Term Care Insurance’s site.