Read This Before You Buy Long Term Care Insurance - Why Do Long-Term Care Insurance Costs Vary?
A 55-year old single man or woman buying long-term care insurance can pay $1,325 a year. Or, they can pay as much as $2,550 a year for virtually identical coverage. And since it almost never pays to switch from one insurer to another, it's important to get the best long term care insurance cost from the very beginning.
What accounts for one price being almost double the other? Experts will tell you it is a variety of elements and gaining an understanding of how to get the best quote for long-term care insurance can save you significant dollars now and for many years to come. This page explains some of the reasons rates vary -- so keep reading.
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So why do long term care insurance costs vary by as much as 92%?
Each insurer uses their own pricing factors to determine what they want to charge. Those factors include their assumptions for the number of people who will go on claim and what those costs will be. Companies who have been in the business for several decades have acquired quite a bit of experience. Some have over a million policyholders. Size can matter -- but not always.
What does matter is the fact that each long-term care insurance company bases sets their own profitability targets. In other words, one company may simply hope to earn a lower return from every policy sold. Others hope to earn more and they price accordingly. Unfortunately, that's not something the agent can tell you when you are looking into this protection.
Something an agent can tell you is when was the insurance company first started selling this particular policy in your state. That will give you a sense of when the policy was priced. This is quite important for several reasons. Older policies may have been priced when investment returns, particularly interest rates, were higher than they are today.
Research conducted by the American Association for Long-Term Care Insurance found that for over one percent decrease in interest yield on the premiums paid by policyholders, an insurer needs a 10 percent rate increase to maintain the projected profitability. Or, more simply stated, if the particular policy you are being shown was priced when interest rate returns were projected to be six percent a year and today they are three percent, the insurer has been losing money on every policy sold. The question is will they be seeking a rate increase to make up the gap. Should that happen, your current savings could be quickly wiped out and you could find yourself paying more than you would had you bought a policy that used more current pricing.
Older policies may have also used older "lapse rate" assumptions. The insurer projects the percentage of people who buy their long-term care insurance and will "lapse" or drop their coverage. People lapsing coverage really isn't their concern. It's how many people actually keep their policy in force until it is time to begin drawing claim benefits. Older policies tended to use higher lapse rate assumptions. If you sell 1,000 policies (just an example) and expect to have 500 still in force in 10 years ... BUT you have 600 ... there will be that many more claims. More claimants means more dollars out the door and that's a primary reason why some older policies are seeking premium increases today.
Each company has pricing sweet spots and they can vary considerably. Some have more attractive pricing for couples than for single individuals. Their experience shows that with couples, the spouse often initially provides care thus keeping a cap on claim costs. Others favor those who apply in their 50s. As we've said, it really pays to compare.
Each company also determines what discounts they want to offer and how large the particular discount will be. Some offer discounts to couples when only one spouse or partner qualifies for coverage. Others will offer a more limited version.
All of these variables make it critically important that one shops the market for this important protection. Finally, understand that not all insurance producers are the same. Some only have access to policies from one insurer. Others are brokers and have access to multiple companies -- typically five or six. That doesn't make one better than the other but it is important to ask how many and specifically which companies they are looking at when working up a quote for you.
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Get a free, no obligation cost quote from an Association member with access to all top long-term care insurers.
Click here to complete our simple online questionnaire
It's Secure. There is never any obligation and the information is (of course) free.