Long-Term Care Insurance, Short-Term Deadline

One of the biggest challenges retirees face is the ever increasing cost of health care, particularly extended stays in long-term care or nursing facilities. Traditionally, people have dealt with the expensive possibility of such stays in two ways: self-funding (i.e., paying for the entire cost of care out of pocket), or offloading some of the financial burden to a third party using long-term care insurance (LTCi).

While not perfect, LTCi policies can help individuals hedge the risk of significantly spending down portfolios while preserving wealth for a surviving spouse, children, or some other beneficiary.

In the last few years, insurance companies have been steadily increasing premium costs for old and new policies alike due to the combination of having to pay out larger than anticipated claims, fewer people cancelling their policies than originally projected and lower returns on insurance company investment portfolios. And in just a couple of months, one of the leading providers of LTCi will introduce two new wrinkles in the LTCi equation: one dealing with pricing, and another involving qualifying for coverage in the first place.

We’ve heard from two major insurance brokers that work exclusively with fee-only financial planners that Genworth will introduce re-priced LTCi premiums in April. Currently, LTCi premiums are unisex, meaning that men and women of the same age and underwriting class are charged the same. Come April, Genworth plans to charge single females premiums that could range as high as 40% above the current unisex rate.

While understandable from Genworth’s point of view (according to the American Association for Long-Term Care Insurance, women tend to live longer, single women have no caregivers at home, and women are paid two out of every three LTCi benefit dollars), the move makes an already expensive product that much more costly for single females.

As of now, rates for male applicants are not expected to change. And it appears likely that couples discounts (which are currently applied to applications for spouses applying together) are expected to increase to compensate for higher female premiums.

The second anticipated change involves the underwriting process. Also starting in April, Genworth plans to begin requiring paramedical exams for all LTCi applications, including blood work. This move will likely impact the underwriting classes (and consequently premiums) for some individuals, or potentially eliminate others from being insurable at all.

The comprehensive wealth management service offered by Woodward Financial Advisors includes evaluating situations just like this. Single women interested in LTCi policies, as well as individuals with existing health issues for whom a paramedical exam could be problematic, should consider applying for LTCi policies before these anticipated changes go into effect in April.