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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