Today’s blog post continues the series about buying long term care insurance as a strategy for planning ahead for long term care. My post of May 22, 2014 discussed whether to buy long term care insurance at all; and my post of May 29, 2014 discussed looking for a stable, proven insurer. Today’s post will describe how to identify a proven, stable Long Term Care insurance company. The introductory post in the series on planning ahead for long term care costs appeared on May 15, 2014. (Thanks to Toby Kemsuzian of Skylight Financial for his input on today’s topic.)
Today, I add some criteria to help identify the proven, stable Long Term Care insurance company:
- A “superior” rating from A.M. Best (the independent rating agency for insurance companies;)
- A history of participation in the Long Term Care insurance market; and
- A history of NOT raising rates on existing policy holders.
The first criterion, the A.M. Best “superior” rating is self-explanatory. The information is readily available on the internet, and companies rated “superior” will usually make it obvious on their own websites.
The second criterion, a history of offering Long Term Care insurance, recognizes that some companies have entered the long term care market and then quickly left the market. In fact, some insurers that had offered long term care insurance over many years have withdrawn from the market. So, unfortunately, following this criterion cannot guarantee that your insurer of choice won’t pull out of the market in a few years. Nonetheless, LTC insurance shoppers should be wary of new entrants in the market.
The third criterion, a history of keeping rates steady for policies in effect, is probably the toughest to figure out but could be the most important measuring stick.
As discussed in my prior post, you don’t expect to make a claim against your long term care policy for a long, long time after you buy it. During that long time, the economy can have many ups and downs, possibly taking your insurer’s finances up and down with it. At some point, the insurer may need to find a way to increase its income and may turn to its policy holders to get that income.
Long term care policy holders who receive notices of a rate increase would be caught in a dilemma. They can pay the increased premiums, or they can try to find new policies. The new policy choice is tricky, however. The policy holders are older now, so their new policies would cost more than their original ones. In addition, some of the policy holders would probably have become less healthy and perhaps could not qualify for a new policy. These “sick” policy holders would have the dubious choice of higher premiums on their existing policies or no long term coverage at all.
Please be aware, all long term care policies probably contain language allowing the insurer to raise rates. (An agent selling for a company that has, in fact, raised rates will quickly point out this language in their competitors’ policies.) The only thing that potential buyers of new policies can control in this regard is the choice between insurers that have raised their rates versus those insurers that have not raised them.
This is not to promise that an insurer that has not increased rates in the past will continue to forgo rate increases in the future. No one can promise that. (As financial services advertisements explain over and over, good results in the past are not a guarantee of good performance in the future.)
On the other hand, I think it may be true that bad performance in the past is an indication of likely bad performance in the future. Raising rates on existing policy holders shows that an insurer may value its own financial results above the good of the policy holders. Accordingly, a company that has raised rates in the past is, I believe, more likely to do so in the future (when compared to an insurer that has not raised rates.)
Note: Do not look at changes in the cost of new policies over time. My discussion concerns rate increases placed on policies after those policies are already in effect.
Accordingly, when considering long term care insurance:
- Look at A.M. Best rated “superior” insurers,
- who have been in the long term care market for a long time, and
- who have not raised its rates on existing policy holders in the past.
For more information, visit Jim’s website.
Jim Koewler’s mission is
“Protecting Seniors and People with Special Needs.”
For help with long term care or with planning for someone with special needs,
call Jim, or contact him through his website.
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