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INSURANCE
Costs Up, Benefits Down
by Mary Beth Franklin Upheaval continues to plague the long-term-care-insurance industry as another major player has decided to stop selling new policies after this year. Aegon N.V., an international firm that markets policies under the names Transamerica Occidental Life, Life Investors Insurance Co. of America and Monumental Life Insurance Co., says the risks of future claims outweigh the potential for profit. Insurers paid more than $1 billion in long-term-care claims in 2002 alone. Although the shakeout may ultimately strengthen the market and lead to more stable rates, consumers could see a string of premium hikes as insurers bring older, under-priced policies in line with new, higher costs.
"Aegon may be the canary in the coal mine," warns Marilee Driscoll, author of The Complete Idiot's Guide to Long-Term Care Planning. "The concern is that perhaps companies that are no longer selling LTC insurance will have no reluctance to raise premiums on existing policyholders."
Aegon says it will continue to service existing policies and pay claims for in-home care, assisted-living and nursing-home expenses. In fact, the company doesn't even plan to notify its 340,000 customers of its decision to stop selling policies because, it says, stopping sales affects only new business. Aegon's decision follows a string of recent consolidations and exits from the market. CNA, Conseco Senior Health and IDS Life no longer sell policies, although they continue to service existing ones. Travelers and TIAA-CREF got out of long-term care altogether by selling their business to other insurers. Genworth (formerly known as GE Capital), John Hancock and MetLife -- the three insurers that dominate the market -- tend to offer more expensive policies than other insurers. But, so far, none has increased premiums on existing policies.
Feeling the pinch
Marvin and Joan Schwartz of Dennisport, Mass., recently learned that premiums on their Aegon Transamerica policies will jump 45% this year, from $4,525 to $6,560. And, the company says, there might be another increase within two years. "I always knew they could increase the premium, but I never thought it would be this much," says Marvin, 74, who bought policies for himself and Joan, 69, seven years ago.
"Long-term-care insurance has become a luxury product," says Ben Lipson, author of J.K. Lasser's Choosing the Right Long-Term Care Insurance. "If a multibillion-dollar company can't guarantee that premiums won't increase, how can a retiree on a fixed income afford to buy it?"
The Schwartzes and others being hit by big rate hikes have three choices, none of them particularly attractive: pay the higher premium, reduce benefits or walk away from the policy. Driscoll says it's a tough call for older policyholders who can't afford the higher premiums and are unlikely to find affordable insurance elsewhere.
For the Schwartzes, she recommends trimming the coverage period from five to three years. But Driscoll warns against one money-saving option -- extending the elimination period before benefits begin to more than 90 days. Paying for care out of pocket for more than three months could be financially devastating. Older policyholders close to the potential claims age have another option: dropping expensive inflation protection.
If the Schwartzes drop their policies, their benefits would be limited to the nearly $32,000 they've already paid in premiums. That's a far cry from the $670,000 of long-term-care costs their two policies would cover today.
Younger policyholders who bought insurance within the past few years may want to consider switching to another top-rated insurer that is likely to be there for them 20 or 30 years from now. Unfortunately, if younger policyholders bail out, it will leave the Aegon companies with an older pool of policyholders, which in turn could lead to a vicious circle of higher claims and bigger premium hikes.
--Research: Jessica Anderson | 
MAGAZINE
