The insurance industry has failed. This is what industry failure looks like… and why it’s important to you.
It’s a fact. According to The US Department of Health and Human Services, 70% of us who reach age 65 will need some form of long-term care at some point before we die. Twenty percent of those needing some care will need it longer than five years. When you consider the fact that care inside of a nursing home facility can easily cost $7000 per month, or more, it’s easy to see how important long term care planning is to ensuring that you and your loved ones are properly taken care of and a lifetime of assets don’t quickly disappear.
For this reason, long-term care insurance sales were booming a decade ago. Sales peaked in 2002 at 754,000 individual plan sales. Insurers developed cutting edge products that provided lifetime benefits, adjusted payouts with compound interest increases, and some even came with return of premium riders. Here’s the problem. Actuaries got it wrong. And when I say “it”, I mean everything. Actuaries under-projected interest earnings. They under-projected claims experience. And they under-projected policy retention. They could miss one of their projections with little fanfare but missing all three compounds the unexpected losses to unfathomable amounts.
Unfortunately, these significant and compounding errors have wreaked havoc on the insurance companies who produce long-term care insurance products. They’re losing hundreds of millions of dollars per year. While John Hancock, a historical leader in long-term care insurance, was the last domino to fall with their announcement that they’re exiting the business, they’re far from the first. According to Forbes, nine out of ten companies that were selling the product ten years ago have ceased all sales activities of long-term care insurance. While carriers cannot simply cancel policies, they are permitted to raise rates in order to stem losses. Consequently, rates are rapidly rising on older policies. Genworth, for example, raised rates on existing policies as much as 50 percent in 2012. John Hancock raised rates for federal employees with plans by 83 percent this year. More hikes will continue. Sales of traditional long-term care insurance are already down 75 percent from their peak. If you own a long term care policy, you may expect continued increases in your premiums and changes in who services your policy as carriers unload their portfolios and cap their losses.
On the positive side, new insurance carriers (including Nationwide)have entered the market and have created new products that provide long-term care benefits inside of a life insurance policy or annuity structure. They’re known as combination products and benefits of these plans are numerous:
- Owners/beneficiaries receive financial benefits even if no long-term care is needed
- Premiums are fixed and cannot be increased
- Plans may pay long-term care benefits without having to submit receipts for approval
Due to these advantages of combination plans, and the challenges with traditional long-term care insurance plans, combination product sales industry-wide exceeded traditional long-term care sales for the first time in 2015. If you are over 45 and do not yet own long-term care coverage, or you own a traditional and are healthy enough to qualify for a new policy, we recommend that you explore the benefits of a combination product.
Wishing you much financial success,
J. Richard Braun, CFP, LUTCF
The Braun Agency’s mission is to get you from where you are to where you want to be, by helping you build your plan, achieve your plan, and protect your plan from uncontrollable events. In the process, we are committed to delivering to you the best financial products and services in the industry in a manner that exceeds your expectations. The Braun Agency serves thousands of households and small businesses in Virginia Beach, Norfolk, Chesapeake, Hampton, Newport News, Portsmouth, Suffolk and surrounding areas. To see what we can do for you, contact us.
The Braun Agency’s mission is to help you get from where you are to where you want to be financially by planning, achieving your plan and protecting your plan from unexpected events. In the process, our goal is to deliver insurance services in a manner that exceeds your expectations. See what The Braun Agency can do for you today. Give us a call at 757-452-4563 to speak with one of the licensed, professional members of our team or request a contact here. The Braun Agency. We’re on YOUR side. 757-INSURANCE.