Wednesday, December 23, 2015

Boost in interest rates a plus for LTC policyholders

Last week the Federal Reserve increased the federal funds rate and the discount rate by a quarter of a percentage point. Soon you should see the yields on your savings accounts, money market accounts, and money market funds go up, too.

And if you’ve been thinking about buying a long-term care insurance policy, or already own one, you might also benefit.

According to Jesse Slome, executive director of the American Association for Long Term Care Insurance (AALTCI), "Higher interest rates will enable insurers to avoid increasing premium rates with new policy offerings." According to AALTCI data, a one-percent increase in (long-term) interest rates can translate into a 10-to-15 percent decline in policy premiums (costs).

"Companies currently offering LTC insurance policies will earn more money on the reserves they set aside to pay future claims," Slome explains. "Financial strength is important for existing policyholders and those buying new coverage that will be called on to pay benefits in the future."

Will we ever see double-digit premium hikes like in the years past? Hard to tell. But the first rise in short-term interest rates since the financial crisis is a start in helping consumers and the long-term care insurance industry that has been struggling in a low interest rate environment.   

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