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Sullivan Insurance
Increase attributed to low interest rates, longer life expectancies and lower-than-anticipated policy lapse rates.

This week, Employee Benefits News reported that insurance agents can expect a significant increase in long-term care insurance (LTCi) premiums this year. The publication cites a report by Jeff Lane, an analyst for A.M. Best Co., indicating that a combination of ultra-low interest rates longer life expectancies for LTCi and a low lapse rate among policyholders is causing many carriers to seek higher premiums.
Independent agents may wonder how to explain the rate increase to a customer. (It should be noted that rate increases are not expected to apply to customers who were 70 or older when they purchased their policy). On one hand, carriers have long maintained that LTCi is essential for Americans to protect their assets, maintain their standard of living and their ability to procure care from a quality LTCi provider. On the other hand, imagine telling a client that carriers' assumptions surrounding pricing included higher lapse rates than expected. Of course, all insurance companies need to use realistic assumptions when pricing and reserving their insurance products. However, many insurance agents have done a good job of educating their clients to the need for LTCi and have sold them policies that reinforce the value of having good coverage. With this in mind, one has to wonder why typically conservative insurers would be aggressive when it comes to the lapse rate assumption for LTCi policies. Having purchased a policy, why would an insured drop LTCi coverage as he or she gets older? It is counterintuitive to most agents and policyholders.
If LTCi carriers do significantly raise rates this year, the increase will serve to ignitethe political health care debate. Independent insurance agents may get caught in the middle with many of their clients who experience significant rate increases in 2010. While this sustained period of low interest rates would have been difficult to predict, the policy lapse factor may be a very difficult pill for agents and their customers to swallow. It will be interesting to see where LTCi rates will end up in 2010.

Dave Evans ( is a certified financial planner and IA l-h contributing editor.

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