The Underwriting Process: How the Price of your LTCI Premiums are Determined

In my last article I discussed the process for long-term care insurance underwriting. Now I will try to answer one of the most common questions about premium rates, which baffles consumers who are considering purchasing a policy.

Why are my premiums higher than someone else's?

There can be many reasons why premium rates vary from one person to the next. Age and policy design differences alone can have a big impact on the premium paid by two different people. But suppose two individuals were the same age and had an identical policy setup from the same long-term care insurer. What could most likely be the cause for a different premium rate for each policyholder?

In this case it is most likely that one person received a more favorable rate classification than the other. When the underwriter reviews the results of the telephone interview and the medical records of an applicant, his or her decision is not simply approval or disapproval. All long-term care insurance companies have a rate classification system that is designed to assess the degree of risk that each applicant poses based on his or her health history. In many cases there are only two levels of risk: preferred and standard. However, some carriers use two or three more levels of rate classification.

Preferred rates are usually reserved for applicants with an exceptional health history. This means that they would most likely be well within height and weight build guidelines, with no history of major illnesses, and would be taking a minimum of prescribed medications, if any at all.

Standard rates are applied when there has been a history of potentially serious conditions such as heart attack, cancer, arthritis that requires medication or back problems that resulted in surgery. The applicant's weight-to-height ratio may also disqualify them for the best rate classification if it is too high.

Substandard rates may be applied to applicants who have had even more serious conditions or whose illness is considered potentially disabling. If the health problems are deemed too serious, then the applicant is simply declined.

How do rate classifications affect my premium?

Applicants granted a preferred rate classification get the best premium rates since they pose the lowest risk to the insurance carrier. Those with a standard rate classification often receive rates that are between ten and fifteen percent higher. Applicants who are considered substandard often see their premiums increase an additional twenty-five percent.

It is very important to work with an agent who represents several major carriers, as each company will have a unique underwriting procedure. An agent who is independent can help get you the best rates by comparison shopping.

Until next time… Duane

Duane Lipham is a Certified Long-Term Care (CLTC) consultant. You can get more free information, news and articles regarding long-term care and aging at The Long Term Care Consumer Guide Web site and The Long Term Care Review Blog.

Posted in Applying for LTCI, Financing Long Term Care