Long-Term Care Insurance Grows In Popularity

by Joanna Kauffmann  on Monday, Apr. 25, 2011 12:00 am  

With the aging of the baby boomer generation, long-term care insurance is experiencing a significant increase in popularity.

Those who cared for their elderly parents without assistance are seeing the value in what a policy can offer. But many questions surround the policies because so few people have first-hand experience with this evolving offering from the insurance industry.

Cost and coverage can be affected by everything from a person's age and gender to what kind of care he needs and what age he is when he purchases his policy. Several options are available for consumers looking to purchase long-term care, such as traditional long-term care policies or life insurance policies and annuities that offer long-term care benefits.

Dan Honey is the deputy commissioner of the life and health division of the Arkansas Insurance Department, and he has been following the surge of interest in long-term care policies.

"It's obvious with the aging of the population and baby boomers moving into senior citizenry that this is a product that has become more popular over the years," Honey said. "It is a relatively new product. It was really first developed in the '80s and '90s."

As with many new products, Honey said, at first, insurance companies were unsure how to package long-term care. "One thing that we have seen over the years and what has been a trend in long-term care is that, because it was a relatively new product back in the '90s, companies were not real sure how to price it. So we have had quite a few companies that underpriced their products, and they're starting to ask for a lot of rate increases."

Honey said that the trend of rate increases was related not only to actual market experience but also because people were living longer. "Companies have a better idea of what the lapse rates are and the mortality rates," he said. "People are living longer, and as people live longer, there are more people that are filing claims because they need the policy rather than people passing away."

More than 20 companies are certified to sell long-term care insurance in Arkansas, including State Farm Insurance, New York Life Insurance, John Hancock and Genworth Life Insurance, which have the largest market share.

Variables Complicate Pricing

Olin Wage, a senior vice president with Stephens Insurance of Little Rock, said that determining the cost of a policy could be difficult because so many variables are involved. "Some basic factors include the age, gender of the insured and their insurability," Wage said in an email to Arkansas Business. "Certain policy provisions and riders can influence premiums. There is not a 'One Size Fits All.'"

A study conducted by the American Association for Long-Term Care Insurance found that the cost of comparable coverage can vary by as much as 40 percent from company to company.

A traditional long-term care policy, Wage said, can be designed so that premiums are paid in 10 years or over a lifetime. Most policies also offer a consumer the ability to designate a specific benefit period, such as three years, six years, 10 years or a lifetime.



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