Should You Keep Your Genworth LTC Policy?
by Jeremy Reif, CRPS
A recent settlement of the class action lawsuit has brought on massive changes and challenges to many folks who own a Long-Term Care policy (LTC) through Genworth. In the recent settlement of a case called Haney et. Al. vs. Genworth Life Insurance Company et al, letters have gone out to policyholders letting them know the changes and challenges ahead. The deadline to elect a special election option is required by 12-25-2023.
Background:
“LTC” stands for “Long-Term Care.” This specific insurance is specifically designed for those who need extra special attention because they’re getting older, sick, or can’t do the acts of daily living on their own. LTC has changed over the years and is not only for nursing homes anymore. Care can happen in many different places, like a nursing home, assisted living, memory care, adult daycare, or at home with help from caregivers. The whole purpose of the insurance policy is to have people to assist you when you need it most.
In 1974 a company named GE “General Electric” was the pioneering firm that started selling LTC insurance for when people get old and need that extra type of help. Being that GE was the first to the marketspace for this type of insurance led them down a path of many unknowns. The biggest issue is the price for future services.
Actuaries would crunch the data from the medical world, but the data was not tracked the same as it is modern-day, leaving GE in a spot where they needed to make assumptions. Some statistical information was taken from different types of insurance like disability or life insurance to create models of how the pricing scales would work. Knowing full well that there would be growing pains, some things were correct, but other assumptions were wrong.
Pricing The Policies:
Genworth became one of the biggest companies that sold LTC insurance. Back in the ‘70s, they charged more money for men than women, even though more women lived longer on average. Looking back on this, we now know based on updated data that GE needed to charge more for women than men.
One thing that they continued to do from the start was make the insurance policy difficult to get. They also didn’t give insurance to people who smoked or were sick. Looking back on this, this might have been a partial mistake. That meant that GE had to pay out on the insurance benefits that they were drawing from a smaller pool of people. A smaller pool of people also meant a smaller pot of premiums to payout claims.
Some companies that sold this kind of insurance went broke or had big financial problems. Many factors contributed to making the premium pricing process difficult. As a result of medical improvements, new medications, people living longer than previous generations, incorrect or incomplete statistical data, and faster-rising prices in the medical field. Many or all of these things led them and other companies to weaken their financial position.
GE must have had an inkling that their financials in the LTC division were trending in the wrong direction. This is probably why back in 2003 GE started to split their businesses up and created the financial division (Genworth Financial). GE finished by transferring the remaining stock in February 2006. At this time the financial ratings of the company started at “A” rated and quickly moved well below that in the subsequent years. (AM Best C++ – according to their 9/27/23 settlement letter)
Your Options:
If you have a Genworth policy, you probably received a letter about the settlement. They give you some choices. You now have multiple options that were not available previously. Options included in the letter used to write this article included: do nothing, cash back, change your policy to have less coverage, lower your benefit caps, decrease your inflation benefit, a few paid-up options or you might have to pay a lot more in premiums.
The letter also stated if you wanted no policy changes that there is up to 130% premium increase depending on your policy type and subject to whether the state where you live will allow for the full increase in premiums. They also state in their letter that there will be future increases for these same policies. It’s not great news if you have this insurance.
These policies were sold all over the country and were supposed to be good and are still good assuming that there is an insurance company there. The benefits are only as good as the insurance company backing them. If there are more future fights in court Genworth might have more problems. With a C++ rating, they might have to charge even more or go out of business like other LTC insurance companies have.
The million-dollar question. What should you personally choose if you have one of these policies that are affected by the settlement?
Things to think about:
- Age – If you wanted to get the identical policy that you have right now, chances are that you would end up paying substantially more with a different carrier. This depends on how many years have passed since you took out your original policy. Age is one of the key factors in how much you pay. The older you are, the more you pay.
- Health – Qualifying for a new policy makes you subject to underwriting. If your health has deteriorated since you originally took out your policy, you might be better off keeping your existing policy.
- Type of coverage – Individual coverage vs shared coverage. Covering 2 people instead of 1 can help lower the costs of a policy.
- Elimination period – How long Medicare will cover prior to your policy kicking in.
- Coverage Length – How many years should you plan for? Policies that pay for life are no longer the norm. The answer to this question is personal and family history could help with figuring this out. Alzheimer’s and Dementia in the family history might change the length of coverage needed.
Weigh The Above Items vs The Options Below:
- Do nothing and pay more premiums for the same coverage
- Accept a form of Cashback and the changes of coverage associated with it
- Accept a form of reduced coverage to keep your premiums the same or lower
- Accept a lower benefit cap total
- Decrease your inflation benefit
- Take a paid-up options
The answer for you and your loved ones is that it truly depends. As life unfolds for you, the answer is different for every single policyholder and should be treated that way. Start with where you and your family are presently and your thoughts for your health and financial future moving forward. Then it is always advised that you consult with a financial planner or a qualified insurance agent to review your unique circumstances.
sources:
https://en.wikipedia.org/wiki/Genworth_Financial#:~:text=The%20company%20was%20incorporated%20as,February%202006%20for%20%242.8%20billion.
Please note: This article is not an a recommendation nor should it be perceived that this is a recommendation in any way. Each policy owner needs to figure out what is right for them based on their own set of circumstances. This article only identifies what options are available based on a letter sent to an actual client. Furthermore, this does not mean that all of these options are available to every policyholder.