Long-Term Care Insurance – Now or Never?

By R. Todd Holden, Financial Advisor

The Long-Term Care (LTC) insurance industry is beginning to go through an upheaval. There are two reasons for this:

1) Low interest rates are a major cause of the upheaval. When an insurance company issues a long-term care policy, they expect to invest those premiums for a 20- to 30-year period AND they assume a certain rate of return, say 4 percent. For the most part, insurance companies invest in bonds and mortgages — things that pay interest. When an insurance product is priced with a 4 percent return assumption but the company can earn only 2 percent, it makes a huge difference over 20 or 30 years. The only way to make up for lower investment returns is to raise prices, which they are starting to do.

2) COVID-19 has also scared long-term care insurance companies. When insurance companies have reliable information and statistics, they are good at pricing their policies.  They know how many of us will suffer from Alzheimer’s, incur strokes, etc.  The companies have reams of statistics on these sorts of afflictions and can price their policies accordingly. But they have no information on COVID-19 and how it will affect our health as we age.  How many people who catch COVID will have long-term breathing problems or other side effects, requiring long-term care in the future? They don’t know. This scares them, and when they’re scared they protect themselves by either raising rates or making their underwriting (who they accept) more stringent.

For example, on September 1, Mutual of Omaha, a reputable LTC insurance carrier, both raised its prices and lowered the “couples” discount they offer when two members of a household apply. Other companies will do the same. 

If LTC insurance is going to be part of your financial plan, which I continue to recommend, do it now before rates go up even higher. Contact your advisor to discuss your options.

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