While life insurance carriers have years of historical and actuarial data about life expectancies to help influence their premium rates, the Long-Term Care industry only goes back a few decades. This means Long-Term Care insurers had to make some estimations about the LTC policyholders’ behavior in 15 to 20 years, such as whether you’ll file a claim, how long you’ll live after you file and how many policies will lapse.
Unfortunately, many of those assumptions weren’t accurate. When policies were issued in the 1990s and early 2000s, companies estimated a 4% lapse rate, but as years when on, only 1% dropped their policies.2 Additionally, the life expectancy of people has increased, which results in more claims being paid out in benefits and generally for a longer period of time than the companies initially anticipated. As a result, the insurance companies aren’t earning enough in premiums to pay all the claims being filed, so they’re raising the rates.
Insurers gave themselves the right to raise rates in your contract. But to impose a rate increase, they must get the state insurance commission’s approval. Regulators often reduce or reject price increases, so if an increase is approved, the commissioners believe it’s necessary.