Long-term-care insurance is a product that offers buyers some peace of mind.
But it has also saddled some longtime holders with a different kind of financial worry.
The policies can ease the burden on families of paying for some types of extended care — in nursing homes and often also in assisted-living facilities or at home — that typically aren’t covered by standard medical insurance or Medicare.
But many people who bought coverage years ago have been slammed with large rate increases as insurance companies struggle with unexpectedly high claims on the policies. The risk of further rate increases was brought home again this week, when Genworth Financial GNW, one of the leading issuers of LTC policies, reported an $844 million quarterly loss and said a turnaround in its LTC business would take longer than previously expected.
Here are three takeaways for people with existing LTC policies from Genworth and other carriers:
A past rate increase doesn’t forestall additional hikes down the road.
Genworth didn’t announce any new plans to request rate-hike approvals from state regulators. Instead, the company said it took a $345 million charge against earnings to bolster its claims-paying reserves.
“This is a good thing for policyholders,” even though the hit to earnings is a negative for Genworth’s shareholders, says Bill Comfort, owner of an LTC insurance agency in St. Louis.
Still, some holders of older Genworth policies, including ones issued in the 1980s and 1990s, have already seen three rounds of rate increases approved by state regulators, says company spokesman Al Orendorff. In the third round, in 2012, the company sought increases averaging more than 50%.
Even if a policyholder has seen an increase, “you are still exposed to another,” says Claude Thau, an LTC-insurance consultant and broker in Overland Park, Kan.
In September 2013, Genworth began filing with states for rate increases on some policies issued between 2003 and 2012. As of Oct. 31, 22 states had approved those rate increases, the company says.
You’re unlikely to find a better deal by switching insurers.
When policyholders get word of a rate hike, they often wonder if they would do better to switch to a new policy from a different insurer. “Inevitably the answer to that question is going to be no,” says David Wolf, an insurance broker in Spokane, Wash., who works with financial advisers. “I’ve never run a scenario where replacing a policy was more advantageous from a pricing perspective.”
That’s because insurers have repeatedly raised prices on new LTC policies, upon realizing the mistakes in pricing policies in years past.
Many older policies also have more generous terms — such as unlimited benefits — than policies being sold today. For owners of older policies, “If you can afford to keep it, keep it, because it is really valuable,” Thau says.
It may be possible to cut back benefits and still have good coverage.
When insurers raise premiums on older policies, policyholders typically can opt to trim back their coverage in order to moderate the increase in cost.
One thing to keep in mind, says Wolf, is that buyers years ago may have picked a policy’s daily benefit amount based on the cost of nursing-home care — and also locked in a generous 5%-a-year inflation adjustment. These days, a lot of care is delivered in assisted-living facilities and at home, which typically costs less than a nursing home.
To see how an older policy’s daily benefit compares to current costs, Wolf says people can look at cost-of-care calculators on the websites of Genworth and some other insurers.