May 27th, 2014
Connecticut Governor Dannel Malloy signed two bills into law last week that pertain to Long Term Care Insurance and potential rate increases. The bills seek to help educate consumers about the possibility of rate increases and protect policyholders from exorbitant rate hikes that could cause some to cancel their policies.
Reasons for Rate Increases
any Long Term Care Insurance providers have raised rates in the past several years to address a number of changing influencers, namely mortality, lapse, and interest rates that are much different than actuaries initially estimated when the policies were first sold.
Not only are policyholders living much longer than expected, but they are using their policies at higher rates, too. Those factors coupled with the forced low interest rate environment have resulted in insurance companies experiencing low returns on investments. That has led them to increase policy premiums in order to remain financially solvent and be able to continue to sell plans to consumers who are looking for long term care coverage.
Connecticut regulators have been especially stringent when it comes to approving Long Term Care Insurance rate increases, so these two new bills shouldn’t come as a surprise to any one. Though the new policy rates are still a good value when compared to the cost of care, it seems that many consumers weren’t even aware of the fact that rates could increase, so these laws are intended to help rectify that situation and shed light on how these kinds of policies work.
Senate Bill No. 9 requires that any individual submitting an application for Long Term Care Insurance in the state of Connecticut be informed by those selling the coverage or accepting the application that rates have the potential to increase later. The law requires more than a verbal notice; each applicant is required to receive a written warning of the fact and must also sign a document acknowledging that they are aware of the risk of rate increases on their policy.
Because so many policyholders have expressed outrage when initially notified of the upcoming rate increases on their Long Term Care Insurance policies, this law was passed to help provide information that can help educate the consumer in advance and avoid policyholder indignation in the future.
The second bill, Senate Bill No. 199, turns its focus to the actual rate increases and limits how insurance carriers can implement the hikes. The new law requires that Long Term Care Insurance carriers enacting a rate increase of 20% or more must spread the rate increase out over a period of three years or more. Rather than be forced to accept the entire rate increase all at once, policyholders will now be able to absorb the increase over time in a more manageable way.
Understanding the Value
Though rate increases aren’t ideal for any one, it’s important to keep in mind the value of Long Term Care Insurance policies when discussing rate increases. Even after hikes occur, the inherent value of these policies is still much greater than the cost of premiums. When notified of rate increases, some people’s first thought may be to cancel the policy. In reality, though, that doesn’t accomplish much except put you right back at square one, with less money to spend. Those not willing to accept rate increases on their policies must decide how they plan to pay for long term care. Canceling a policy doesn’t cancel the risk of needing care in the future.
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