“We’ve had several recent calls from consumers after being told by a financial planner that rates for insurance would ‘increase significantly’ in 2013,” Slome explains.  “The new discount rate will have minimal impact on long term care insurance and in many cases has already been taken into account by insurers.”

According to Slome, the ‘valuation discount rate’ used for calculating statutory reserves or capital requirements for long term care insurance is dropping from 4 percent to 3.5 percent for new business starting in 2013.  “The rate is tied to Treasury yields based on a complicated formula,” Slome notes.  “It automatically updates when new money rates change over a period of time.”

Five-year Treasury rates are at historic lows (0.62%) and 10-year yields are at 1.59 percent as of September 4, 2012.  “By comparison, both five and 10-year rates were 4.68 percent on January 1, 2007 and 2.65 percent and 4.60 percent as recently as January 4, 2010.

“Low interest rates have been the primary cause of increasing rates for long term care insurance and have impacted other insurance lines including fixed annuities as well as life and disability insurance,” Slome states.  “To compensate for every one percent decline in interest rates which equates to lower investment income, an insurer needs a 10-to-15 percent increase in premiums.   The drop in just the past two years has had an enormous impact.”

The Association reports that the changing reserve requirements that take effect January 1^st are designed to provide added protection to policyholders.  “The half percent drop in reserve rates will have a nominal impact on premiums,” Slome.  “The impact depends on a policy’s duration but is in the two-to-five percent range.”

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 call the organization’s offices at (818) 597-3227 or visit the Association’s website.

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“Last year the nation’s long term care insurance companies paid $6.6 billion in claim benefits to over 200,000 individuals,” reports Jesse Slome, executive director of the Los Angeles-based organization.  According to the Association’s report, the amount of claim benefits paid increased eight percent compared to the prior year.

The Association reports that women accounted for nearly two-thirds (65%) of new claims opened during 2011.   About one in four (24.1%) of new claims commence between ages 70 and 79 while 65.5 percent start after the policyholder reached age 80.  “One in 10 claims start when policyholders are in their 50s or 60s,” Slome acknowledged, “often the result of an accident or illness.”

“The widespread question asked by individuals considering long-term care insurance is will I ever use it,” Slome admits.  “The best we can do is gather information on how people use their benefits.”

According to Association, Alzheimer’s disease was the leading cause for claims in a nursing home or assisted living community while cancer was the top cause for claims that begin at home.

Half of all new individual long term care insurance claims pay for home care services the Association’s research found.   New claims by women receiving care at home accounted for 32 percent of new claims with 18 percent of men receiving benefits for home care.  “Less than one-third (31%) of new claims begin with the policyholder receiving care in a nursing home,” Slome adds.

The Association study revealed that the largest claim still being paid at the end of 2011 had reached $1.7 million.  “There are a number of claims still being paid that have exceeded $1-million,” Slome notes.  “In this particular case, the claimant is a woman who purchased coverage and began receiving care three years later.”   She has been receiving care for nearly 15 years.

The complete findings of the Association’s research are contained in the just-published 2012 Long-Term Care Insurance Sourcebook.    Copies will be mailed at the end of July to all members of the Association.  For additional information, call the Association at 818-597-3227.

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