Long Term Care Insurance

[BeachOrCity]

I have this crazy policy from John Hancock. Bought it around 1990-1991 when I was 25 or so. It was 10-11 bucks a month then. Now with a number of inflation riders I added it’s about 20-25 a month for close to 400k in coverage and a daily limit I think over 300. Needs 2 adl to activate after elimination period.

I know they would like nothing more than for this to lapse, so I set up an auto notify for my sister.

I figure at some point they will get the regulators to allow them to double premiums or whatever, but fundamentally I just can’t get over how from a underwriting perspective this policy EVER made sense for the insurer? !!

 

[mh]

I have this crazy policy from John Hancock. Bought it around 1990-1991 when I was 25 or so. It was 10-11 bucks a month then. Now with a number of inflation riders I added it’s about 20-25 a month for close to 400k in coverage and a daily limit I think over 300. Needs 2 adl to activate after elimination period.



I know they would like nothing more than for this to lapse, so I set up an auto notify for my sister.



I figure at some point they will get the regulators to allow them to double premiums or whatever, but fundamentally I just can’t get over how from a underwriting perspective this policy EVER made sense for the insurer? !!

My mom has the same policy I think. It’s from John Hancock. Smartest thing she ever did. She’s started using it for residential care about a year ago. I don’t remember the premium price. But it was somewhat higher than that ( still a bargain though in retrospect) but she was in her late forties back then.

 

[ziggy29]

I figure at some point they will get the regulators to allow them to double premiums or whatever, but fundamentally I just can’t get over how from a underwriting perspective this policy EVER made sense for the insurer? !!

That's the thing. Auto insurance, life insurance.... it is very easy for actuaries to price these policies appropriately. There is a huge volume of actuarial data on expected claims and losses with a very large pool of insured. But with LTC there was no long history of data to draw on at first, and as it turns out, the early attempts to price these policies failed miserably in part because of inflation in the sector, but also because it appears the actuaries that set the rates badly underestimated the claims, both in terms of number and terms of cost per claim.

This is why I want to like the product and I want to feel like I want to purchase it. But right now, the rates are marginally affordable at best and I worry that we will be "repriced" out of being able to afford it in a few years, at a time when we are far more likely to start needing it. That said, it turned out to be a pretty good deal for my parents, especially the home hospice care it paid for over a few months when my dad was dying of cancer (back in 2005). But like in most things, their generation got a much better deal than mine can ever expect.

 

[CRLLS]

One of the issues I have not come to grips with is various LTC reports that predict the high cost of LTC is they do not relate to the historical use data I've seen. I wonder if the two are using different criteria in their data sets? Or is it that the historical needs are truly out of sync with future use predictions?

 

[ziggy29]

One of the issues I have not come to grips with is various LTC reports that predict the high cost of LTC is they do not relate to the historical use data I've seen. I wonder if the two are using different criteria in their data sets? Or is it that the historical needs are truly out of sync with future use predictions?

I think part of it may be that the existence of the insurance increased the rate at which people used LTC. In other words, if they didn't have the insurance they might not use a facility and just deal with it at home, but with the insurance they decide to use it. That probably increased the utilization rate for long term care facilities in a way that the early actuaries didn't account for in setting rates. They probably figured X people would use it per 1,000 insureds based on historical data, and their experience turned out to be considerably larger than X. They may have accounted for some increased use because of being insured, but apparently not enough. And they probably underpriced the inflation endorsements, too.

 

[MichaelB]

One of the challenges LTC insurance faces that other types insurance does not, is people can self insure. That means the population of current and future policyholders is probably less healthy and has lower savings. At the same time, because they have policies, the policyholders might be more likely to use LTC, compared with someone without LTC coverage.

My guess is there has been and continues to be an error in risk assessment by the underwriters.

 

[ziggy29]

One of the challenges LTC insurance faces that other types insurance does not, is people can self insure. That means the population of current and future policyholders is probably less healthy and has lower savings. At the same time, because they have policies, the policyholders might be more likely to use LTC, compared with someone without LTC coverage.

My guess is there has been and continues to be an error in risk assessment by the underwriters.

LTCI is essentially an upper middle class product. Those of greater means can self-insure. Those of lesser means can't afford the premiums.