Low Interest Rates Push LTCI Prices Up

Low interest rates and other factors may be making new, stand-alone long-term care insurance (LTCI) policies a lot more more expensive this year.

The same forces also seem to be increasing the cost of "linked-benefit" arrangements, or policies that combine long-term care benefits with life insurance.

The American Association for Long-Term Care Insurance (AALTCI) has given outsiders a peek at LTCI and life-LTC hybrid prices in its latest annual LTCI Price Index analysis.

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AALTCI shows what's happening to prices for the new policies consumers are buying now, not what insurers are doing to prices for in-force LTCI policies.

For a 55-year-old single male in "select health," for example, the cost of a stand-alone LTCI policy purchased in Illinois is now about $950 per year with no inflation protection, according to AALTCI. That price is about 9% higher than the annual price for a similar price described in the AALTCI report for 2020.

For a 55-year-old single female in select health, the cost of the stand-alone policy is $1,500 with no inflation protection. That's about 11% higher than the price of the similar policy included in the 2020 report.

For a life-LTC hybrid purchased in Arizona, with a $180,000 pool of long-term care benefits, and a death benefit of at least $120,000, the annual payments for a 55-year-old purchaser would be $4,625 for a single male and $4,600 for a single female.

The life-LTC hybrid prices described are up 28% for the single male, and up 35% for the single female.

Interest rates affect LTCI prices because, traditionally, life insurers have used large portfolios of bonds to support blocks of LTCI business. Interest rates are now much lower than they were a year ago. Low rates help stock owners and home buyers, but they hurt pension plans, life insurers, and other individuals and companies that are dependent on bond earnings.

— Read First-Time LTCI Claimants May Be Getting Older: AALTCI, on ThinkAdvisor.

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