Don't Let Price Increases Scare You Away From Long-Term Care Coverage

Just when America was warming up to the idea of purchasing long term care insurance to protect family assets from the devastating costs of custodial care, the three largest insurance companies have shaken up the market by raising prices on existing policies, not just on policies to be sold in the future. How will this affect your planning?

Long term care insurance policies are sold with the "assumption" of level premiums that won't increase much over the years. That's the incentive to buy when you are young and healthy and prices are lower. Insurers do have the right, however, to go to state insurance commissioners and ask them to approve price increases for specific policies if the claims significantly exceed their original expectations.

When insurers first created long term care policies, it was hard to predict their costs. But insurers gained valuable experience offering benefits and pricing policies on long term care insurance in the past 10 years, and that created the expectation that the risk of price increases on the more recently issued policies would be slim, and that any premium increases would be minimal.

The recent price increases raise questions about these expectations. Those who bought early to lock in lower prices are now being surprised by significant premium increases.

Price Hikes

In the past year, Genworth Financial(GNW) requested increases ranging from 8% to 12% on some policies already owned by its customers. John Hancock announced a 14% increase in some existing policies in May 2008. Nearly all of these policies were issued before 2000. But this week, MetLife(MET) announced it will raise annual premiums an average of 18% for policy holders who were younger than age 70 when they purchased policies in the years from 1998 through 2005.