At the heart of every insurance contract is a shifting of risk to someone more likely to handle it better in exchange for a set of premiums which the insurer hopes it can invest way better than you or I for various reasons. While I am entirely too young to consider Long Term Care Insurance considering I don’t think many carriers sell individual policies for people under the age of 40,I have been giving it a lot of thought recently. If I can’t buy it, while have I been giving it a lot of thought recently? Because I don’t completely understand how current LTC products are a great call for either side in the transaction.
With costs increasing and people living longer there is an obvious need for a product that shifts the risk to a company that can pay for it no matter what, so what don’t I get? I don’t understand why people are purchasing the current products out there nor do I understand why insurance companies are selling the current product today.
Why I Don’t Understand Purchasing Current Long Term Care Insurance Products
As a future purchaser, the scary part of Long Term Care Insurance for me is that there are no guarantees when it comes to the premium. Eventually, I believe that most products will have to be re-priced as long term care seems to be out pacing inflation, and unlike most life insurance policies the premium can increase over time with approval from a State’s Insurance Department.
Referring to the following graphic from Genworth you can see that Long Term Care costs have increased in almost every State at a faster rate than inflation:
Speaking of price, LTCi as it is priced today is not a cheap product for adequate coverage. In terms of whole dollars, it is expensive. Then if you are one of the lucky ones who didn’t need to use their Long Term Care Insurance then there is nothing to pass on to your heirs analogous to a term policy that expires.
Why I Don’t Understand The Selling of Current Long Term Care Insurance Products
While the whole dollar amount might be expensive I don’t think the risk is adequately priced. Am I an actuary? absolutely not. Am I as smart as an actuary? absolutely not. But something about the pricing just seems off considering the tremendous amount of risk they are taking.
For example, $300/day coverage that is a pay out of over $100,000 per year per insured. That is a tremendous amount of risk considering the cost of the policy. Then you add on a common inflation rider (they have both simple and compound) and that adds even more risk (especially at a time time when interest rates are at all time lows).
Lastly, lets say you are the insurance company and you want to increase premiums (which you are allowed to pursuant to the contract) then you have to go to each State’s Insurance Department and fight with them to get your increase. While you are discussing the increase with the appropriate government body you could still be paying out benefits.
Will I Ever Buy Long Term Care Insurance?
Despite not understanding a lot about the inner workings of the product I think it is safe to assume that I will own a product one day that is similar to LTCi considering the increase of aggression fighting Medicaid Planning and the thought of being a burden on my Child (and unborn children) seems like something I would prefer to avoid. That being said, I believe the future LTCi products will be very different than the ones out there today.