LOS ANGELES – The decision last week by the Federal Reserve to raise short-term interest rates for the first time since the financial crisis will have a positive impact on long term care insurance companies and the products they offer according to Jesse Slome, executive director of the American Association for Long Term Care Insurance (AALTCI).
“Most experts expect long-term interest rates will rise in the coming years,” Slome said. “Costs for mortgages and car loans will increase but there is a silver lining. Higher interest rates will benefit safe investments and also insurance products like long-term care insurance.”
Slome noted that 1-year CD rates were roughly 5% in 2000 and even in the 4% range prior to the start of the Great Recession in 2007. “Interest rates have been at historic lows since then, which has especially impacted savings accounts, CDs, annuities, life and long-term care insurance products,” Slome said.
Rising interest rates ultimately spell good news for the long-term care insurance industry, Slome forecasts. “Both consumers and the insurance companies will benefit. Higher interest rates will enable insurers to avoid increasing premium rates with new policy offerings,” Slome said.
According to AALTCI data, a 1% increase in (long-term) interest rates can translate into a 10-to-15 percent decline in policy premiums (costs).
“Companies currently offering LTC insurance policies will earn more money on the reserves they set aside to pay future claims,” Slome said. “Financial strength is important for existing policyholders and those buying new coverage that will be called on to pay benefits in the future.”
Slome predicts the rise in interest rates may also encourage insurers who stopped selling long-term care insurance to re-enter the marketplace. “We have a growing aging population that will need care and clearly no government plans for dealing with the need or cost for care. Consumers want affordable options that they can feel good about, and rising interest rates will benefit both prices and the sense of financial stability,” Slome said.
The American Association for Long Term Care Insurance is a national trade organization established in 1998 to promote sound and affordable planning for Americans. For more information on long-term care insurance options or to find professionals in your area call the organization at (818) 597-3227 or visit the organization’s website atwww.aaltci.org.
