The rapid escalation in the cost of long-term-care insurance may be slowing, according to the American Association of Long-Term Care Insurance.
“Individuals considering long-term-care insurance mistakenly believe that rate increases on policies purchased years ago will also affect new buyers," explains Jesse Slome, association director. "There are important differences today that minimize the risk that a long-term-care policy purchased in 2014 will experience large future rate increases.
Slome says the pricing environment will be different for a number of reasons. One thing helping out will be state regulations and oversight that make certain insurers are calculating with more accurate assumptions. Policies will also use more conservative interest rate assumptions that reflect the fact that the rates are in a historically low spot.
Also, policies being sold now assume there will be a lower investment return than that assumed by policies sold in recent years. That also makes the pricing more realistic.
Insurers are furthermore now using a more realistic estimate of the number of people who will let policies lapse, which makes current insurance rates more reliable, says Slome. In the past, companies overestimated the number of policies that would lapse, which increased claim costs. Those increased costs forced rates up for holders of older policies.
Slome says state regulators who oversee insurance products now require that insurers factor moderately adverse conditions into the pricing.
"There's quite a bit more scrutiny, and an insurer seeking a future rate increase will have to provide significant detail as to why their projections were wrong,” he says. "No one can predict what the next 10, 20 or 30 years will look like, but the conditions that created a need for rate increases on older policies just do not exist today."