Why Do Long Term Care Insurance Premiums Go Up?

I’m answering another reader question today. This one was very straightforward: “Why do long term care insurance premiums increase when the benefits do not?”

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If you have a traditional long term care insurance policy you may have received a letter informing you that your premium will increase.

Well, the increase in premiums actually has nothing to do with you as an individual. It is not due to you getting older or even you getting sicker or more unhealthy.

But instead it is based on a group of business (or block of business) with that insurance carrier. If the group as a whole experiences larger than forecasted expenses, then the insurance company can raise rates on that group.

Usually the insurance company will give you the option to slightly reduce your benefits so you can keep your premium at the approximate amount it was before the rate increase.

When insurance companies do this, it means their actuaries did not accurately forecast how much it may cost to insure this group of business. They may not have anticipated such a high percentage of the group to need long term care. Or they may not have accurately forecasted the increase in health care expenses that would occur in the future.

As long as humans cannot perfectly forecast the future (which will be forever), it is likely that rate increases will continue to occur. The actuaries do the best they can, but they can sometimes miss the mark.

Hope that answers the question.

Be sure to check out http://www.retirementplanningmadeeasy.com to download your free retirement reports.

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