The Death Of Five Percent Compound LTC Coverage

Five Percent CompoundIt has become obvious over the past several years that long term care insurance carriers are adverse to risk, even though they are in the business of insuring risk. Recently, they have eliminated lifetime benefits, reduced the daily maximum benefit, and increased the intensity of medical underwriting. They have also increased the rates for five percent compound inflation far more than for other inflation options or for no inflation or guaranteed purchase option.

I believe that Genworth’s rate refresh in California, effective September14th, is the final straw. The rate refresh is a dramatic one, but the rates for five percent compound rates border on the absurd. They represent such a poor value that no agent in their fiduciary role could in good faith propose them.

For example, look at the rates for couples at the select, or normal underwriting class. The couples rate is a blended rate and can be compared with the older unisex rates. For the sum of both members of a qualifying couple based on a $ 4,500 monthly maximum, 90 day EP, three year benefit period, 100 % HHC and RCF:

No Inflation                  3 % Compound                 5 % Compound

Age 50           Age 60       Age 50         Age 60             Age 50         Age 60

Old Rates                1,482            2,117           2,137           3,113                 3,850           4,945

New Rates              3,102             3,235           3,733           4,939                 9,715         11,014

The bottom line here is that a $ 400 daily benefit at 3 % compound would cost far less than a $ 200 daily benefit at 5 % compound. To put it another way, a $ 600 daily benefit at no inflation would far cost less than a $ 200 daily benefit at 5 % compound inflation.

The new rates for males have less of an increase over the old rates, and the new rates for females have more of an increase over the old rates.

You will find that Genworth rates at no inflation and 3 % compound inflation are saleable, and are somewhat comparable to the rates of the other carriers, although higher in most cases. And Genworth still can boast of its experience and great claims paying processes. There are plenty of reasons other than price to recommend Genworth. But at 5 % compound inflation, Genworth is not in the game, nor do they want to be. So if you are a California agent, be forewarned…don’t sell Genworth with 5 % compound inflation. And consider the value of other carriers, such as Mutual of Omaha and Transamerica.


Louis H. Brownstone is the Chairman of Northstar Network Insurance Agency, Inc. and is a certified Long Term Care specialist. Louis is recognized as an industry leader, with articles appearing frequently in California Broker Magazine and other industry publications and events.