Low Interest Rates Force Long-Term Care Insurance Prices Up

Prices for long-term care insurance policies jumped between 6 and 17 percent in the past year, according to an industry survey.

A 55-year-old couple purchasing long-term care insurance protection can expect to pay $2,700 a year (combined) for about $340,000 of current benefits, according to the 2012 Long-Term Care Insurance Price Index, an annual report from the American Association for Long-Term Care Insurance.  The same coverage would have cost the couple $2,350 in 2011.

The steep price rise is primarily due to historic low interest rates and yields on fixed-income investments, explained Jesse Slome, the Association’s executive director, in a press release. Between 40 and 60 percent of the dollars an insurer accumulates to pay future claims comes from investment returns, Slome said, noting that for every one-half percent drop in interest rates an insurer needs about a 15 percent premium increase to maintain the projected net profit.

The Association annually analyzes what consumers will pay for the most popular policies offered by ten leading long-term care insurance carriers. The study found that the average cost for a 55-year-old single individual who qualified for preferred health discounts is $1,720 for between $165,000 and $200,000 of current coverage. In 2011, the same coverage would have cost an average of $1,480 annually.

The policies the Association priced all include a 3 percent compound inflation growth factor, meanting that a 60-year-old couple buying $340,000 of current coverage today would see their benefit pool grow to $610,000 when they reach age 80.  According to the report, the couple could expect to pay about $3,335 a year if both spouses qualified for preferred health discounts.

The study suggests that it’s more important than ever to shop around for coverage because the range between the lowest-cost and the highest-cost policy has increased compared to the prior year. “For the 55-year-old single policy applicant the highest-priced policy cost almost 80 percent more than the lowest-priced policy,” Slome noted. “For some categories, the difference was as much as 132 percent and no single company always had the lowest nor the highest rate, which is why we stress the importance of comparison shopping.”  Nearly three-quarters of buyers opt for a 3- to 5-year benefit period, the Associaton reports.

Policyholders can experience rate rises after they purchase, although long-term care insurers are allowed to raise prices only on a class of policyholders, not on individuals ones, and they must receive state approval for the rate hike.

The complete 2012 Price Index will be published in the Association’s 2012 Long-Term Care Insurance Sourcebook. For more information, visit the American Association for Long-Term Care Insurance’s Web site.

For an article on how to cope with long-term care insurance rate hikes, click here.

For more on how to reduce long-term care insurance costs, click here.

For more on long-term care insurance, click here.

To discuss elder law issues with an attorney, please call the Elder Law Center at 630-844-0065 or contact us via email. The Elder Law Center is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.

5 Ways Your Will Can Become Useless, Or Close to It

Is having an out-of-date will better than having no will at all? While wills do not have expiration dates, certain changes can render them useless. When this happens, having an out-of-date will can be the same as having no will at all. It is important to review your will periodically to ensure it still does what you want. The following are five ways your will can become out-of-date:

1. Your beneficiaries have died. What happens if your will leaves your estate to your two siblings, but both siblings die before you? If your beneficiaries predecease you, your will is still technically valid, but it will have no effect on who will inherit from your estate. Instead, your estate will be distributed according to the law in your state, just as if you had died with no will at all.
2. You have potential new beneficiaries. A will that was written before you got married or had children will be of little assistance in distributing your estate. States have provisions that protect spouses and children that come after a will is written. In most states, spouses are entitled to a certain percentage of an estate. In addition, many states have laws that protect children born after a will was written, allowing them to inherit from the estate. It’s possible that under the laws of your state, a spouse and children not named in your will may not receive as much as you would have wanted them to. In both of these circumstances, state law is dictating where your estate is going, not you.
3. Your executor is dead or unable to serve. The executor (also called a personal representative) is the person named in your will who oversees the distribution of your property. If the person you named as executor is unable to serve, the court will have to appoint someone else. Beneficiaries may have a say in who is chosen, but it may not be someone you would have wanted in the position.
4. You no longer own property named in the will. Suppose your will attempts to divide up your estate equally by giving cash to your daughter and property of equal value to your son. If the property is sold before you die, your son will receive nothing. In this case, your will is no longer ensuring your estate is divided equally.
5. The law changes. If your estate plan was designed specifically to avoid estate taxes and the estate tax law changes, your will may no longer serve its purpose.

To ensure your will is still up to date, please call to speak with an attorney at the Elder Law Center at 630-844-0065 or contact us via email. The Elder Law Center is located in Aurora, IL, Kane County, in the Chicago Western Suburbs.