What is my LTC 1.0 policy worth?

This is a vital question as it underlies what actions one might take in view of numerous factors. This one has no easy answer and requires a series of posts over time. This post is for “starters” and some of the discussion is admittedly sublime. Cases to start.

Case 1: A policyholder (PH) has been diagnosed with 2 Activities of Daily Living (ADLs) to trigger a claim. That would seem to suggest the policy might be worth as high as its Benefit Maximum, but no greater. There are factors to reduce the actual benefit paid out, contract factors such as: Elimination Period, rate of benefit payout, whether mortality may precede payout of the benefit maximum. Another factor is cost of LTC care in one’s locality. Note even this simple case is probabilistic & so requires a bit of quantitative skill to determine expected benefit payout. Despite this case’s potentially high financial value, no one hopes for 2+ ADLs so a PH is not really striving to maximize his or her policy worth.

Case 2: A PH has been diagnosed with 1 ADL. The question might be: Given 1 ADL, what is the likelihood of 1 more ADL (in some subsequent time period – let’s use “years”) to trigger a claim assuming the PH does not pass first? Here there is the notion of paying premiums while “waiting” for the 2nd ADL. Given that we have discovered the product is not level premium, other considerations would be carrier rate increase requests and Dept. of Insurance policies to grant those requests. Then there is the notion of Net Present Value (“NPV”, an alternate term to “worth”) to “discount” future premium payments and benefits to current (2019) dollars to determine your policy’s current NPV. Clearly, the mathematical model to determine NPV is much fuzzier & more difficult than Case 1.

Case 3: No ADLs, typically a younger PH but not necessarily. A much fuzzier model still. This model might even consider a probabilistic behavioral model: carriers’ ability & willingness to pay claims in some distant future. How about a change in DOI regulations or behavior as it relates to rate request grants? Can such a model be developed? Such, why not? This is well within today’s computational arts & sciences.

Who has such models today? Very unlikely, Consumers. Very likely, insurance actuaries. You would hope actuaries are fully up to speed with computational arts & sciences to manage their business risk exposure. Are they good models? Who really knows, but how did the industry get to where it is now? They claim not to have predicted LTC claims & costs, but other factors as well (some of which do not pertain to a consumer model).

Shifting to a different topic & point-of-view:

Question, a bit sublime: Nationwide, is the sum of all LTC 1.0 policyholders NPV greater, less than, or equal to $0?

Answer: Well, if I were to believe Industry statements, I would say greater (disagree if you’d like).


Speaking broadly about the industry (not individual PH cases as the issue of one PH’s NPV depends on several situational factors – such as the insured’s age, health, financial state), the liability on carriers’ books (broadly, a -NPV) is an asset on PHs’ books (broadly, a +NPV).

One might say the carriers’ are claiming an NPV imbalance that currently favors PHs though they might express that using terms more familiar to the Industry. (Note: I would submit the Consumer side can use terminology / vocabulary it considers relevant & applicable.)

The carriers’ have claimed LTC premiums were underpriced originally and now must reduce their liability to shift the NPV imbalance more to their favor by taking actions, one that is very visible — raising premiums. One should be on the lookout for other actions to reduce PHs NPV (aka a “loss of worth”).


If a PH were to blindly surrender their policy (simply out of fear of rising premiums), that would likely constitute a loss not knowing their policy’s worth. Not recommended.

This may seem counter-intuitive: A small, sustained increase in premium does not necessarily mean a reduced PH NPV over time. Yes, this may not be what was bargained for or understood at the time of signing, but if your contract’s NPV >> $0, you may be holding a contract which is a very good deal, way too good in carrier’s eyes. Requires a more comprehensive model to make an assessment.

More often it is the case where a deservedly angry PH witnesses the current LTC 1.0 debacle, wants out, and wants a full return on all premiums paid to date with interest. Now that settlement calculation is an easy Excel NPV exercise for a “Quant”. But whether that is a better deal than an alternate action (staying put; downgrade policy benefits) with a different NPV result — that’s a tough question to answer without that more elaborate model yet to surface on the Consumer side.

More on this complex subject. Later.

Author: Samuel Cuscovitch

Research scientist / strategist.

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