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Low interest rates make long-term care insurance more costly

Prices for long-term care insurance policies jumped between 6 and 17 percent in the past year, according to an industry survey.

A 55-year-old couple can expect to pay about $2,700 a year for about $340,000 worth of current-value benefits, according to an annual report from the American Association for Long-Term Care Insurance.  The same coverage would have cost only about $2,350 just one year ago.

The steep price rise is primarily due to historic low interest rates, the Association says. Insurers largely fund their payouts from investment returns, and for every one-half percent drop in interest rates, an insurer needs about a 15 percent premium increase to make up the difference.

The policies that the Association researched all include a 3 percent compound inflation growth factor, meaning that a 60-year-old couple buying $340,000 worth of current coverage today would see their benefit pool grow to $610,000 when they reach age 80. According to the report, such a couple could expect to pay about $3,335 a year if both spouses qualify for preferred health discounts.

The study suggests that it’s more important than ever to shop around, because the range between the lowest-cost and the highest-cost policy is increasing. “For the 55-year-old single policy applicant, the highest-priced policy cost almost 80 percent more than the lowest-priced policy,” the Association found. “For some categories, the difference was as much as 132 percent, and no single company always had the lowest or the highest rate, which is why we stress the importance of comparison shopping.”

Nearly three-quarters of buyers opt for a 3- to 5-year benefit period, the Association says.

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