A single 55-year-old man or woman who buys long-term care insurance can pay $1,325 a year. Or they can pay up to $2,550 a year for virtually identical coverage.
What explains why one price is almost twice the other? The experts will tell you that it comes down to a variety of things, and understanding how to get the best long-term care insurance quote can save you a lot of money now and for many years to come.
That’s a very important point because unlike other insurance products where you can shop for the lowest price each year, long-term care insurance is typically purchased once and only once. Insurers base their prices on what is called your attained age. Simply put, there is a price for a 55 year old. Someone 56 years old will pay more. Someone over 65 will pay a little more.
So why do prices for virtually identical coverage vary so much, and what questions can help you get the best coverage at the best price?
First, each insurer uses its own pricing factors to determine what it wants to charge. That includes profitability targets. In other words, a company can simply expect to earn a lower return on each policy sold. Others expect to earn more and price accordingly. Unfortunately, that’s not something the agent can tell you when you’re looking into this protection.
One thing they can tell you is when the policy was first issued in your state. That will give you an idea of when the policy was priced. This is quite important for several reasons. Older policies may have been priced when investment returns, particularly interest rates, were higher than they are today.
Research by the American Long-Term Care Insurance Association found that for more than a one percent decrease in interest yield on premiums, an insurer needs a 10 percent rate increase. Or, put more simply, if the particular policy you’re shown was priced when interest rate yields were projected to be 6 percent per year and are 3 percent today, the insurer has been losing money. The question is whether they will seek a rate increase to make up for the gap. Her current savings could quickly disappear and she could end up paying more than she would if she had purchased a policy that used more current prices.
Older policies may also have used older fall rate assumptions. The lapse rate assumption projects the percentage of people who purchase long-term care insurance and keep their policy until it is time to start collecting claim benefits. Older policies tended to use higher assumptions. And that’s one of the main reasons why some older policies are seeking premium increases today.
Every company has key pricing points and they can vary considerably. Some have more attractive prices for couples than for single people. His experience shows that, for couples, the spouse often provides care initially, thus keeping a cap on claims costs. Others prefer 50 year olds more than others.
Each company also determines what discounts it wants to offer and how big the discount will be. Some offer couple discounts when only one spouse or partner qualifies for coverage. Others will offer a more limited version.
All these variables make it vitally important that one search the market for this important protection. Finally, understand that not all insurance producers are the same. Some only have access to policies from one insurer. Others are brokers and have access to several companies, usually five or six. That doesn’t make one better than the other, but it’s important to ask how many and specifically which companies are looking for when they put together a quote for you.