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Message from Tobe:

Rate increases are something to be aware of when considering the purchase of traditional LTCI. Unless an accelerated payment option is purchased ( a traditional LTCI policy that is single pay or a 10 pay), you would be vulnerable for a rate increase in the future. While LTCI is “Guaranteed Renewable” as long as the premium is paid on time or within the Grace Period, it is not guaranteed that the premium will never go up. We have seen most of the LTCI companies who came into the market early on already file for and have had rate increases approved. For those companies, their initial pricing turned out to not be sustainable. Because the LTCI companies now have sufficient claims data to draw upon, the products today are priced to be actuarially sound. In addition, the design of many LTCI products has changed. We don’t see many companies offering a Lifetime/Unlimited Benefit Period, and we don’t see many companies offering a reasonably priced 5% Compound Inflation option. Many consumers today are purchasing shorter Benefit Periods and a lower level of Compound inflation.

We get a lot of calls from policyholders and non-policyholders wanting to go over their options when they are presented with a rate increase. Once a letter is generated notifying the policyholder of an upcoming rate increase, the policyholder will be presented with options should he/she want to decrease some aspect of his/her policy to keep it more affordable. These letters offer a few different options, but most insurance companies have other options available that can be accessed by calling the company. As an example, the letter may offer the ability to decrease the monthly benefit from $9,000/month to $8,000/month, but the policyholder may want to go down to $7,000/month. In that case, it is worth calling the company to find out if that option would be available and to learn what the reduced price would be. In many cases, the policyholder can lower the daily/monthly benefit, lower the benefit period, remove inflation, raise the elimination period, remove riders, etc. The other thing to know is that most insurance companies will allow you to downgrade design features of your LTCI policy at any time, even if there isn’t a rate increase pending.

One option to be aware of is an offer to accept a “paid up” policy with or without a small “cash” stipend included. Oftentimes, these offerings are advantageous to the insurance company but not to the policyholder. The lure of receiving some “cash” may sound enticing until you do the math!

We are always happy to review rate increase options with you by phone or over Zoom.

“Q & A” of the Month:

Q: How do I make sure that my policy doesn’t lapse if I’m traveling for an extended period of time out of the country?

A: This is a great question, and it is quite broad in scope. The first thing to know is that when you initially complete an application for a LTCI policy, you have the opportunity to list a person (or people) to be notified in case of unintentional lapse. If the premium is not paid on time, a letter will be sent to the person on file letting her/him know that the premium remains unpaid. Some companies send out a letter every year asking the policyholder to update this information, but other companies don’t send anything out and put the onus on the policyholder to update the information directly with the insurance company. If the policyholder lists a person and that person moves, it is extremely important to make sure that the insurance company is aware of the new address. Some insurance companies will accept the updated information by phone, while others will ask you to complete their proprietary form. I recently had a financial advisor call me because the mother of his client had her policy lapse and the client said that he was never notified. We found out that the mother never contacted the insurance company to let them know that her son had moved a number of years ago. LTCI policies list the terms and conditions when it comes to “reinstatement”.

Yours in success,
— Tobe Gerard

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