“Clearly the economy is having an impact on when individuals start their long-term care planning and what benefit levels and policy options they select,” states Jesse Slome, executive director of the long-term care insurance industry organization.  According to the annual study, 73.5 percent of buyers of individual policies were age 55 or older when they applied for coverage compared to 69 percent for the prior year (2008).

When it came to choosing benefit options, the study found a slight increase in the percentage of individuals selecting lower benefit levels and longer elimination (deductible) periods.  Both contribute to lower premium costs.  Some 43 percent of buyers selected initial daily benefit amounts of $149 or less; compared to 37.5 percent for the prior year.   The vast majority  (92.2 %) of buyers selected elimination periods of 90 days or longer; compared to 86 percent for the prior year.

 ”The most common benefit period selected remains three years,” Slome notes.  Some 29.5 percent of buyers selected a policy designed to pay benefits for at least three years.  The overwhelming majority added an inflation growth option that increased benefits each year.  “The 5 percent compound growth factor, chosen by 47 percent of buyers, can double or triple the cost of the base plan of insurance protection,” Slome adds.  “Buyers understand they are protecting future risk and saved in some areas but were willing to pay more for this important option.”

 The Association added two new areas to the 2009 study; average premium paid and marital status at time of purchase.  According to the findings, the average buyer between ages 45 and 54 paid $1,900 annually for their coverage.  “There was a significant average price range between companies,” Slome notes, “from as low as $1,000 to over $3,200 for this age segment.”

 The vast majority of buyers of long-term care insurance are married.  According to the report, some 54 percent of purchases involved couples covering both lives.  Nearly one-fourth (24%) involved couples or partners where only one individual was covered with 22 percent of policies purchased by single individuals.

The complete findings of the survey will be contained in the 2010 Long-Term Care Insurance Sourcebook published by the American Association for Long-Term Care Insurance.  Copies are mailed to all Association members in May 2010.

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REPORTERS AND OTHER MEDIA WHO WOULD LIKE THE FULL PRICE INDEX FINDINGS SHOULD CALL THE ASSOCIATION AT (818) 597-3227 or E-mail Jesse Slome, Executive Director at: jslome @ aaltci.org.

The index published annually measures costs for top-selling long-term care insurance policies that offer consumers approximately $115,000 in current benefits, with protection increasing yearly as the individual ages.  “A solid base plan of protection will grow in value to over $305,000 of protection 20 years from now,” explains Jesse Slome, Executive Director of the national trade organization that conducted the research.

The study compares costs for different levels of plans that provide long-term care benefits for
3-years or longer with a compound inflation option that increases the available insurance benefits by five percent compounded each year.

“For some age bands the cost of long-term care insurance actually declined,” Slome notes.  “What we did see is a far wider range of prices between insurers offering basically the same coverage.”  According to the Association study, costs can vary by as much as 100 percent.  “This could reflect different benefits or simply the individual insurer’s pricing assumptions,” Slome explains.  “Consumers should compare policies or work with a knowledgeable insurance professional who can analyze for them.”

Lower Interest Rates Impact Costs For Insurance Policies

The cost for long-term care insurance is closely related to interest rates that have significantly declined in recent years.  “Investment income comprises between 40 and 60 percent of the dollars used to pay eventual long-term care claims,” Slome explains.  “Premiums paid by policyholders make up the other portion and as interest rates have declined, insurers have found it necessary to raise premiums for protection.”  The industry paid out $8.5 billion in claims in 2008 to some 180,000 policyholders.

“The cost of long-term care insurance is directly related to how much protection you purchase, the age you first apply and your health at the time of application,” explains Slome.  “Over half of all individual applicants are between ages 55 and 64, and one third purchase a daily benefit of between $100 and $149.”  The daily benefit amount actually equals either a cash benefit or a pool of money that the policyholder can access.   Most insurers offer significant discounts when both spouses apply for coverage.

The survey compared costs for individuals age 55 with those age 65.   “A married individual purchasing $172,000 in current protection will pay about $20 a week ($1,084-per-year) by qualifying for available good health discounts,” Slome explains.  “By waiting until they are age 65, they’ll likely pay $63-a-week because they will need to buy more coverage to keep pace with inflation and will likely no longer qualify for the good health savings.”

LTC Association Study Illustrates Reasons “Waiting Doesn’t Pay”

Let’s say you want to plan for equal long-term care protection at age 75.    A 55-year-old who qualifies for preferred health and spousal discounts pays $1,084 for a “standard” plan based on a current benefit of $150-per-day ($54,750 per-year).   At age 75, the available benefit would be $457,957 because the yearly benefit grows 5% compounded annually.  If you wait to buy at age 65, you need to start with a higher-level of initial protection ($150 grows to $240 at 5% compounded) to have equal protection.  Today, that level of protection ($240) costs $3,275 yearly (assumes standard health).  But, no one can predict future increases for new coverage.  Plus, for that 10-year period of time (age 55-65), the individual has no long-term care insurance coverage.

The Price Index information is available to insurance and financial professionals who are members of the American Association for Long-Term Care Insurance.  For more information on member benefits click on this link: Read Our Membership Benefits Guide.

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