Thursday, June 2, 2011

Long-term care insurance not immune from rate increases

Long-term care expenses are one of the greatest risks you’ll face in retirement. And unless you are rich enough to write a fat check each month, insurance is one of the best ways to reduce that risk. One problem, though, is that policyholders have recently been shocked by double-digit premium hikes from big companies, including John Hancock and Genworth. Now many Boomers are asking … Why in the Heck Are Premiums Going Up? I’ll give you two reasons: Ultra-low interest rates Low rates make it almost impossible for insurance companies to earn a decent return on their investment portfolios that help fund policy payouts. And less money in the payout kitty hurts their bottom line. Policyholders staying put Companies assume a certain percentage of policyholders will drop the coverage before they actually use any of the benefits. But consumers are getting wise ... They’ve come to realize that once purchased, it makes sense to hold on to a policy. In fact, according to LIMRA, the industry research and consulting group, just 3.8 percent of policyholders allowed their coverage to lapse between 2005 and 2007, and the rate was just 1.5 percent on policies at least six years old. That lapse rate is much lower than for other types of insurance, and it was much lower than the industry had expected. Since revenue from lapsed policies falls straight to companies’ bottom lines, profits have gotten squeezed. What You Should Do Keep the policy If your long-term care insurance company sends you notice of a rate hike, do not drop the policy, especially if you’ve had it for several years. Even with a rate increase it’s most likely less than you’d pay for a new policy from another company. That’s because you’re older now and possibly not in as good as health as you were in when you bought your current policy. What’s more, you might not qualify for a new policy. Reduce the benefits Review your policy’s coverage. For example, if your policy will pay for an unlimited time of benefits, consider cutting that back to 3 or 4 years of coverage. There are other ways to slice premiums, too, including a life/long-term care insurance combination, a reverse mortgage and immediate annuities. To learn about these, and many more, check out the updated and expanded edition of A Boomer’s Guide to Long-term Care. Best wishes, George

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