The current low interest rate environment is impacting numerous lines of business one of which is long term care insurance.
According to Jesse Slome, director of the American Association for Long Term Care Insurance <meta name=”news_keywords” content=”long term care”>
affected are annuity companies, life and long-term care insurance companies. “For some reason long term care insurance was the first to catch the media’s attention but clearly many types of insurance are affected,” Slome explains.
Addressing a group of insurance agents this week, the Association director noted that, “interest rates have not been this low in decades and the Federal Reserve has given every indication that things will not change for the foreseeable future. Low interest rates are great for those seeking a mortgage but they also have negative implications in other areas like CD rates as well as some insurance products.”
Among the insurance products impacted are fixed annuity products. “Fixed annuities often pay a declared interest rate, generally defined by two provisions with the word “guaranteed” associated with them,” Slome notes.
One provision common on older policies issued when interest rates were higher provided a guaranteed minimum interest rate that will be credited to the annuity balance. “For many contracts the guaranteed minimum interest rate was set at three percent, a figure that certainly seemed attainable in what were considered normal economic times,” Slome explains.
The second feature offers a guaranteed set payment for life. “This feature was deemed highly attractive by many and according to a report released recently by the Insured Retirement Institute indicated that ‘guaranteed income’ was a top reason people purchased annuities,” according to Slome a leading insurance expert.
Experts point to the low interest rate environment as a reason leading insurers are withdrawing from the marketplace or instituting changes. Prudential Annuities has suspended the ability of policyholders with certain types of benefits to make further contributions.
This week analysts at Moody’s Investors Services predicted that tight consumer budgets will constrain life insurance sales as low rates and volatile stock process hold down insurer profits. They cited that low interest rates are impacting long-term disability insurance products, old blocks of fixed annuities with high guaranteed rates and universal life products with embedded interest rate guarantees.
The American Association for Long Term Care Insurance was established in 1998 to advocate for the importance of planning for long term care and to support insurance and financial professionals who market LTC insurance. To learn more about long term care insurance costs <meta name=”news_keywords” content=”long term care insurance, costs”> call the organization’s offices at (818) 597-3227 or visit the Association’s website.
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