Agents tired of the seemingly endless negative news that has plagued the long-term care insurance industry finally have some good news to share. Actually, two pieces of welcome news.
Costs for long-term care insurance protection are down from the prior year. In some instances, costs are as much as 15 percent lower. Considering all the negative news focused on rising prices and their impact on consumers, especially older Americans, this is a bit of welcomed, good news.
The data comes from the just released 2023 Long-Term Care Insurance Price Index published by the American Association for Long-Term Care Insurance (AALTCI).
Prices for traditional long-term care insurance are, in general, slightly lower than the prior year. The more substantial price drop comes from linked-benefit or hybrid long-term care insurance. Overall, the Association found that costs were as much as 15 percent lower.
Pricing for long-term care insurance tends to have an inverse relationship with interest rates. When interest rates are low, insurers need to increase premiums in order to accumulate the needed funds to ultimately pay claims. When interest rates rise, insurers can choose to lower premiums as they anticipate earning greater returns from future investment of premiums.
Over the past year a number of the linked-benefit LTC insurers announced premium rate reductions. When one started the snowball rolling downhill, others inevitably followed.
Insurance agents should be careful to anticipate that consumers could view the news as a suspicious come-on.
It is therefore important to offer the fuller explanation that long-term care insurance companies factor in interest rates when calculating policy rates. This is not unique to long-term care. Life insurers keep a substantial share of their assets (some reports indicate that it is over 60%) invested in interest-earning bonds.
Interest rate changes can impact some financial products rapidly. For example, certificates of deposit rates have been quickly rising. Others, including, insurance tend to move more slowly. But the impact can be long lasting.
A sustained period of higher interest rates, as many now expect, will reduce or likely eliminate the risk that long-term care insurance policies will experience what many refer to as rate increase risk. This is generally not an issue for linked benefit long-term care insurance policies but should be welcome news for agents who are selling traditional LTCi policies or serving clients with existing policies.
In terms of marketing the message, consider communicating the fact that insurers have repriced products factoring in higher interest rates. They will experience higher investment returns and are passing the savings on to you. At the same time stress the overriding importance of health qualifying for this protection. As the saying goes, your money pays for long-term care (now less) but your health really buys it. And, that rarely gets better the longer you wait.