The future of traditional LTCI premiums

By Jeff Reed

Kestler Financial Group


With the assistance of Lincoln Financial, we pulled a portion of data from the California Department of Insurance around historical price increases, looking at both their frequency and magnitude to gain some insight into what the future may hold. Essentially, the future of traditional long-term care pricing is Pandora's box.

The vast majority of carriers have increased rates, many of them multiple times. The magnitude of the increase is staggering: Most are well into the double-digit percentages, with approved increases as high as 120 percent. There are, however, a few exceptions in a handful of carriers which can be found at the top of the financial rankings and also tend to have less exposure based on a smaller in-force block.

I strongly encourage you to review the data from the California DOI: To draw some meaningful conclusions from the data and how a traditional LTC contract might play out for a client, we went through the process of analyzing the total cost of both traditional LTC and an option like MoneyGuard on a year-by-year basis. We elected to use the frequency (every eight years) and magnitude (15 percent on average) of price increases at Genworth as the traditional LTC carrier for this comparison.

About the client:
  • Male, age 67
  • Preferred health
  • $7,500 per month LTC benefit
  • 3 percent compound inflation

About the comparison

Assuming the clients has a lump sum of approximately $250,000 available that will pass to their beneficiaries at their death, would they be better off buying a product like MoneyGuard or traditional LTC and investing the lump sum?

The LTC benefits are virtually identical, so the difference comes down to the solution with the best liquidity — should the policy owner need to use it for other purposes — and the amount passed to the beneficiaries in any given year if the insured dies without a claim.

The results

The results are compelling, and I would give the win on cash value to the side fund with one significant caveat. I'm not sure you can achieve a 3 percent after-tax rate of return in today's economic environment with the same guarantees that exist in the MoneyGuard contract. The cash analysis tips to MoneyGuard at rates below 3 percent. The net to heirs clearly favors MoneyGuard, assuming that future increases in the traditional LTC market follow historical patterns. I'm not sure that's a safe assumption.

Remember, we've seen single increases from carriers as high as 120 percent, which is simply going to force many insureds to walk away from their coverage right when it's needed most. These policy holders will find themselves without coverage, and all the premiums paid over the years will have been wasted.

Most clients will trade the certainty that comes with the guarantees of a product like MoneyGuard for the massive uncertainty of future premium increases and a side fund that may or may not be there.

See also:
"LTCI is too expensive" — The importance of controlling the narrative about price
Creating value and avoiding LTCI sticker shock