Just talked with some state insurance people. I called a couple of states: where the companies were based, where we live now, the two possible states where we may be living in five years. Talked with some insurance commission people in most of the states I called.

Findings:
Genworth had below avg # of complaints in 2011 and 2010. Mutual of Omaha had below avg # of complaints in 2011 and 2010. That's good for each of them.

Further discussion with some of the employees included their remarks that they believed based on the increases in costs to the companies of 15% to 20% per year, that huge rate increases in the policy premiums will be enacted down the road with policy holders. In fact, they said they did not think ltc was a wise investment at this time due solely to the likelihood of increase premiums in the future. We looked at past rate increases for Genworth, which to me seemed reasonable. These increases amounted 8-12% premium increase one time after the product had been held 15-20 years. I am budgeting for that and consider that fair.

I was told by state insurance people that John Hancock recently had increases of 20%, followed by 21% for something like 40% over two years. That would cause me to be unable to pay the premium. That approaches a scam.

It makes me wonder what element of "scam" is contained in these ltc policies. If the industry were serious about not increasing policy premiums, then they'd include that guarantee or set limits on the increases, just like annuities have minimum rates of return, even if current rates of return are higher. I don't think the whole insurance industry is a scam. I do think certain variable annuities, especially those that are funded with IRA money, are scams. Where does ltc fall in this range of viable products and shady scams?

If there were premium guarantees, I'd back off my scam claim. I realize my personal policy premium cannot be increased. Increases must be done on a whole class of policies. How convenient to increase the policies 20 years after they are sold, just before people will start making the claims, so many will have to drop coverage. But that would be unethical! When has big business adhered to ethics? (I'm not condemning the agents.)

I can especially see the practice of huge increases down the road based on our US demographics. The line is being cast now so we can be hooked, and reeled in later with huge premium increases. The baby boomers are buying the policies now and 20 years out they'll all be needing the benefits. Who will be buying these ltc policies 20 years from now to allow that segment of the market to continue to be profitable?

**First, there will be fewer people in that 50-60 age group demographic, so fewer sales, requiring the ltc profits to be made in another manner--like boosting premiums.

**Second, there may be a government component of ltc through your job. From what I understand, it is far less coverage than any of the private plans, but still it will offer competition that is not present now, again resulting in fewer new sales of ltc policies. If you can't make money on new sales, boost the profitability of the current policies with rate increases.

**Third, the pool of 50-60 year olds with sizeable nest eggs to protect will be fewer due to decreased wages and reduced benefits, a trend we are seeing. LTC only makes senses if you have something to protect. So maintaining a stellar reputation of no premium increases is not important once the market for new sales has virtually evaporated.

**Fourth, I believe insurance companies count on investment returns to provide about 40 percent of the money needed to meet benefit obligations. With the dismal market we have had, and the dismal performance in fixed instruments, the proceeds will have to come from increased premiums.

The group entering retirement now may be an anomaly in collective wealth, offering a unique opportunity to bilk down the road. A decent track record of premium increases so far (John Hancock notwithstanding) will placate and lure the boomers into purchasing ltc. I remember a similar plot in "The Sting."

The world of investments is also a different place than when ltc products were first introduced. "It's not your father's Oldsmobile" and it's not your fathers long term care policy and remember what happened to Oldsmobile.

Premium guarantees would stifle all this speculation (which I know appears to border on conspiracy theory) on my part.

I am not picking a fight here, just stating my thoughts, as I contemplate this important purchase. Please rebut, refute, correct misconceptions.

What does this statement mean:

"Further discussion with some of the employees included their remarks that they believed based on the increases in costs to the companies of 15% to 20% per year, that huge rate increases in the policy premiums will be enacted down the road with policy holders."

(my emphasis on the part that needs clarification).

Thanks for responding and seeking clarification.

I was told that the benefits being paid out to ltc policy holders are increasing at 15% to 20% for the ltc companies. That is not the annual premium increase to the policy holders.

But rate increases to the policy holders will likely follow due to these rising costs for the ltc companies.

Hope that helps.

I find it hard to believe that someone who works for a department of insurance would give you this advice, because the person you spoke with does not understand how long-term care insurance premiums are regulated.

Whoever told you this, I suggest you call them back and ask them if they understand what "experience rating" means.

LTC insurance policies are "experience rated". Any premium increase is based upon the experience of each particular "policy series".

Each insurer creates a new "policy series" about every 2 to 4 years (sometimes longer).

Here is what "experience rating" means in a nutshell:

"Policy Series Q" cannot get a "premium increase" because "Policy Series H" is having a 15% increase in claims every year.

"Policy Series Q" policyholders can only have a premium increase based upon the experience of everyone who has "Policy Series Q".

Essentially, someone buying a policy today is insulated from the "bad experience rating" of policies that were sold 10, 15, 20 years ago.

To suggest that a policy purchased today will have huge rate increases because older policy series are having big increases in claims, demonstrates a lack of understanding of this fundamental principle of long-term care insurance.

The policies that are available for purchase today use much more conservative assumptions. Therefore a policy purchased today is LESS LIKELY to have a premium increase (not more likely) than the policies that were purchased 10 to 20 years ago.

It's all about risk. No one, including the insurance commissioner and their employees, know what the future holds. Buying LTCI does have risk. But not buying LTCI has risk too. I personally like the idea of shared risk. I have long term care insurance on me and my wife. I choose to risk my premium dollars in somewhat of a leveraged way with an insurance company to some extent, rather than take 100% of the risk of having to pay all of our care with our money, with no help from an insurance company.

One huge risk factor to consider is this. The day the insurance company puts the policy in force, they are on the hook for the maximum benefit from that day forward. You are only on the hook for the premium you paid with the application. I call that leveraging my premium. The insurance company calls it spreading the risk. Call it what you wish, but that's the whole concept of insurance. A lot of folks pay some premium, so that the ones that need care have money available for their claims.

You are the only person that can decide where you want to be on this risk time-line.

Thanks

They are on the hook only for that one year. Not that day forward forever. I have to pay the premium the next year for the policy to continue to be in effect. Fair enough, but when there is no control on premium increases, that next year's premium could be ANYTHING, and if not the next year, the year after that. When I need the coverage, they'll increase premiums (not just on me but on everybody who bought the policy when I did) so much that either

a) I'll have to drop the coverage or
b) the benefits I can afford will be lowered drastically from my original plan.

I could certainly understand a 10% increase in premiums after 20 years, but not in the 30% to 40% range that I am reading about.

So we are faced with losing everything to the nursing home in a several year time frame or losing everything to the nursing home in a several year + 2 or 3 years time frame if we have insurance long term care insurance that we can continue to afford.

The big factor here is luck, unless you have millions to cover whatever medical care might be needed. If you are unlucky, you lose it all whether ltc is part of the plan or not. If you are lucky, you'll die with the ability to enjoy a little of what you've saved all your life or to pass it on. I see other forms of insurance as altering the randomness of sheer luck or lack of it to my favor by spreading the costs. LTC does this only marginally--minimally reducing my risk of losing everything at a far greater up front cost. And that up front cost is not even known to me--it can be whatever the insurance company decides at any time in the future.

The reason I am buying ltc now is to lock in affordable premiums for someday when I'll need the benefits. Without limits on premium increases, the policy holder is a victim. If there were premium limits, I think much of what I have learned about ltc is reasonable and fair.

lookingforltc,

"lookingforltc"??
I'm not what you're looking for, but maybe you're right, there are too many downsides to purchasing an LTC policy.

Who knows, premiums on a policy that you buy today, may increase by 20000000000% by the time of your first renewal.
You might be better off without a policy.
Just my 2 cents
Arthur

Why aren't the insurers employing this strategy right now?

Why did LTC insurers pay over $6 billion in LTCi claims last year if they could have just raised the premiums to exorbitant levels and avoided paying all those claims?


Scott A. Olson

lookingforltc,

I think you should not buy an LTC policy. It's just too dang risky for you. Insure yourself. Assume all the risk yourself. That's less risky?????

Bill

"They are on the hook only for that one year"

So are you. Each year you get to decide if you want to renew the contract or not. They have to renew if you pay the premium. You get to decide. You are in control. Each year you pay the premium, you are paying them to assume the risk one more year. This is not an investment for future use. This is protection for an unforeseen catastrophic event that could happen anytime, not necessarily 30 years from now.

For those who are concerned about premium increases, the best way to avoid that is to buy an LTCi policy that is guaranteed to never have a premium increase. There are two types:

1) single-pay and

2) 10-year pay with a 10-year rate guarantee.


Scott A. Olson

Scott,

You are exactly right. But.....when you see how much more they cost to begin with for those privileges, it's almost worth the risk to not get a 10-pay with a 10 year rate guarantee, and take your chances isn't it? The cost is much less, and you could still have lots of rate increases, and come out paying less.

As an example, I have policies on my wife and I that I bought 8 years ago from a company that doesn't sell LTCI anymore. I've not had a rate increase yet, but I'm sure I will at some point. Probably several. But....if my rates tripled from what I am paying now, it would still be less than if I bought a new policy today. And that does not take into consideration that I am uninsurable now.

Different stokes for different folks. It always boils down to "what's your risk tolerance?"

I am looking at the 10-pay and the pay it all up front option.

Do you have to be more than 10 years away from 65 for the 10-pay?

Do you have to be more than 10 years away from 65 for the 10-pay?

No.