Insurance

Dear Liz: I’m an insurance agent specializing in long-term-care policies and just read your advice to the woman who was upset about how much her premiums had risen. Her premiums were $2,400 annually starting when she was 55 but are $4,470 now that she’s 77. First, thank you for noting that these premium increases are because insurance companies didn’t expect people to live so long and nursing home rates to increase so much. Please also tell your reader that, at her age, her premium for the coverage she has now would be well over $12,000! She bought early and she’s definitely getting a ridiculously low premium for the coverage she has. I’m sorry that she’s on a fixed income, but ask her how she’ll pay for a $60,000-per-year stay in a nursing home. If she can’t afford her premium, she should reduce her amount of time covered, not the amount of dollars covered.

Answer: Let’s be clear about who’s at fault here. It’s not the people who bought long-term-care insurance policies and expected them to remain affordable.

Insurers are supposed to be experts at predicting risk, but they made incorrect assumptions about how many people would drop their policies (known as the lapse rate), how many would file claims and how long those claims would last. Insurers also overestimated the returns they could get on their bond investments, which also help determine premiums.

All these stumbles have led to repeated premium increases that have threatened to make coverage unaffordable right when people need their coverage the most.

This woman is well aware of the high costs of long-term care; that’s why she bought the policy in the first place and kept paying it all these years. Her premium might seem “ridiculously low” to you, but anyone with an ounce of empathy could understand that $4,470 is a huge chunk of change for most seniors.

Keeping her coverage means giving up some of the benefits she was promised and had been counting on. Reducing the number of years the policy protects her, for example, could make her premium more affordable but leave her exposed to devastating costs if she needs many years of care.

This is a crappy situation for people who were trying to do the right thing. They don’t deserve to be sneered at for being upset about it.