In recent years many major LTCI companies have raised premiums on not only new products but also on existing policyholders. Those rate actions have certainly not been popular with insured consumers, including the writer of this article! That being said, having long-term coverage in place should the risk occur is still far less expensive, financially and emotionally, than paying for care out-of-pocket, or, in the worst case, having to spend down vulnerable assets to qualify for Medicaid.
Over the last 14 years Futurecare Associates has published a Cost/Benefit Matrix to help advisors and their clients get a perspective on what the average cost of a reasonable base amount of LTCI coverage, $4,500/month, would cost based on various issue ages, 50, 55, 60, 65, 70, 75, health underwritten risk classes, preferred or standard, and benefit periods, 2, 3, 4, 5, and 6 years.
The Matrix presented here uses the same $4,500 basic monthly benefit. There’s no magic to that number. $4,500 is simply, in our judgment, a reasonable safety net to catch a substantial part of a monthly long-term care expense today.
The matrix uses a 90 day one-time elimination period. 90 days is the most common deductible selected today by folks in structuring their LTC policies.
Average preferred and standard rates are illustrated. Companies differ in what they consider preferred compared to standard risks. The majority of policies are issued on a standard premium basis.
The rates are based on the average of the annual premiums charged by 5 major, well-rated LTC insurers doing business in Pennsylvania as of March 2011. All of the rates are for HIPAA Qualified, comprehensive, individual long-term care policies. If your client lives in another state, the rates may be a little lower or higher, but the average costs shown here will still be a useful tool for preliminary planning.
Lifetime benefit costs are not included here because the trend is to limited benefit durations, particularly where shared care is included in a couple's benefits.
How to read the Matrix
Be sure to note the single line horizontal block containing the Key to the vertical column identifying the elements included in the the various rates. SC--No IR means that the rates shown to the right are for a Shared Care benefit with No Inflation Rider. SC--5%S means that the rates to the right of that designation are for a Shared Care benefit with a 5% Simple Inflation Rider included in the rate. SC--3%C denotes rates with both Shared Care and a 3% Compound Inflation Rider. And SC--5%C means that the rate is for Shared Care with a 5% Compound Inflation Rider.
A 5% Simple automatic annual benefit increase will double the original benefit in 20 years. 3% Compound will do the same in 24 years, and 5% Compound will do so in about 14 years (14.4).
Next note the boxes lettered (A), (B), and (C). While all of the rates quoted in the Matrix are for one insured, the lowest premium, (A), occurs where two individuals are to be insured (married or life partners). The next lowest premium, (B), is where a couple exists but only one individual is to be insured. Premiums for a single individual, (C), are higher.
The rationale for the differences is the likelihood that a spouse or life partner will tend to care for the other on claim, thus potentially reducing claim expenses for the insurance company.
Your client’s premium for a new LTC policy will most likely be lower than the rates shown in the Matrix because the Matrix is based on average premiums. There was, in fact, a significant difference in the individual rates of these companies. It will pay your client, at least initially, to shop both to secure the most favorable health underwriting and the lowest current premium for the benefit structure he or she deems appropriate for their needs.
Click on the following matrices to view a larger version. If you would like to download and print out a copy of each, please see the attachments below the last matrix. To return to the text from a matrix, click on your back arrow.