Important Message Regarding Long-Term Care Insurance
If you have long-term care insurance, you have most likely received a premium rate increase on your policy (potentially multiple ones depending on the insurance company). These are typically accompanied by a few options to make changes to your policy. In general, the options listed are typically more beneficial to the insurance company than the policy owner and are not the only options available.
Here’s what I just went through for my parents:
In May my parents received a notice from Genworth that their premiums would be increasing by 55%. This was on top of the 44% increase between 2013-2015 and the 55% increase they got in 2019. As if that wasn’t bad enough, the letter also had a very subtle note that they were planning on requesting at least 51% in additional rate increases in the future! When my parents bought this policy in 2002 Genworth was still owned by General Electric, was in great financial shape, and had some of the lowest premiums in the marketplace.
With this increase came two options that were never offered, both of which would guarantee against any future rates increases and lock in the premiums for life. Since Genworth stated in the letter that they were already planning on increasing the premiums by at least another 51% in the future, these were looking appealing so my father and I called Genworth together to clarify some things and requested a couple of alternative change estimates. After that call, we were still leaning towards one of the guaranteed options, but something didn’t feel right so I decided to dive deeper.
To make a long story short, it took 8 phone calls to Genworth over a 3-week span, totaling close to 4 hours on the phone before I finally received a copy of the original policy, and the alternative change estimates I needed to do my due diligence. This included waiting the 7-10 business days they said it would take to email me the information I requested when my father and I first called Genworth, which I never received.
After reviewing the original policy and modeling the alternative designs in Excel (including hypothetical future premium increases of 51% and 25% over the next 7 years), it became very clear that the two guaranteed options were amongst the least attractive options for my parents’ situation and that they would likely be the most expensive in the long run.
Had I not been involved or known what to look for and request, my dad would have selected what turned out to be the worst of the 10 options we compared. In full transparency, that was the same option I was leaning towards at first blush too.
Why did this happen?
Due to the prolonged low-interest-rate environment, coupled with the aggressive assumptions some insurance companies made when pricing their products, additional premiums increases are anticipated in the future by many companies. The older your policy is, the more likely it is that you receive an increase.
What to do next.
If you receive a premium increase notice, contact your financial advisor before making any changes to your policy so that they can do their due diligence and ensure you don’t make an irrevocable decision that you might later regret.