UNUM is increasing their LTC policy rates. Apparently, it’s across the board. Word is that they are paying out more than they are taking in, which is not a good way to stay in business.
But that generated a question. Normal insurance (home, auto, health) isn’t cumulative. You can change companies any time. At least for us, the LTC is a fixed rate from the date we enrolled. They can’t increase us because of our advancing years. If we were to change LTC carriers, we would certainly have to pay a rate commensurate with our age(s). I’m assuming that if UNUM were to go out of business, that is the situation we would be in(?). Or is it more likely some other entity would buy the policies from them?
It would suck if, when we need it, they are out of business, and we’d have to be paying rates for persons in their 70s or 80s instead of in their 40s (which is when we enrolled).
As with other kinds of insurance, it depends upon your state insurance body that sets rates. Our LTC was fixed, but after 20 years the company was losing money (people living longer, medical inflation) so that they were allowed by the state to raise rates. If they go out of business then the state usually has a backup fund for payouts, but the amount is limited.
As DrBob stated, each states has a form of state-based FDIC insurance for insurance policies (life, annuity, LTC, maybe a few others). Check Arizona’s guarantee association (that is what it is called in my state).
Is the daily LTC benefit also fixed? Probably. I’ve mentioned here before about a friend’s parents who had a joint LTC policy. They paid for that policy from age 40 or 50-something through age 95/96. The mother never reached her 90 day exclusion period before her death so received zero benefits from the policy. The father made it through the 90 day period and then collected his LTC care benefits for a week or so before his death. So they paid their LTC premiums monthly for 40 or 50 years and received about a week of benefits - the maximum was fixed at $120/day for each covered person, so the insurance company paid out about $1000 in total.
Our rate was fixed for 20 years, but we paid extra for a 5% yearly ‘inflation’ adjustment in benefits. There are usually different levels of policies (at different prices).
Is it a cumulative 5% from sign up or from beginning of benefit eligibility? That’s a HUGE difference! If you signed up at age 50 for a $120/day benefit, begin using it at age 75, does it start at $406.36/day (25 years of 5% adjustments) or at $120/day (and then begin adjusting from there)?
From sign up. Most “partnership plans” have some form of this as a basic requirement.
QUESTION: Do most states require Partnership policies have 5% compound inflation protection, or do some allow 3% or Guaranteed Purchase Options?
ANSWER: No.
In most states any Compound COLA is OK under the age of 61. From 62-75 it can be any automatic cost of living rider and after age 75, nothing is required. The 61-62 age can vary but 75 is typically the cut off for a required COLA rider. In most states the GPO does not qualify the policy for partnership.
Again, the original 4 are exceptions from the rules
California: 5% Compound required to age 70. After age 70, client can opt for 5% Simple.
Connecticut: 5% Compound required at all ages. Under 65 benefits can inflate but discuss with a specialist the available options.
Indiana: 5% Compound inflation protection is required to earn total asset protection. 5% simple for buyers ages 75 and older earns a dollar for dollar only or CPI at any age up (earns dollar for dollar only).
New York: 3% or 5% Compound at ages 79 and younger.
It is 5% per year. We had a choice between no inflation adjustment, an increase of 1% per year or a compounded 5% a year. Since we could afford it, we went with the compounded program.