The recent settlement in the case of Haney, et al. v. Genworth Life Insurance Company, et al. in the U.S. District Court for the Eastern District of Virginia, makes clear that Genworth and its long-term care insurance program are failing.
As a bit of history, GE Capital started selling long-term care insurance in the 1990s along with other companies and adopted a defective model for purposes of pricing and administering these programs. The traditional long-term care insurance program mistakenly utilized a “disability model” for purposes of long-term care insurance that was not well designed.
For example, questions were raised in the ’90s as to the sales and pricing of these policies. Although nursing home demographics revealed that there were seven women for every man residing in these facilities, the policies for men were priced at a higher level, similar to disability policies. In short, the average duration for a man in a nursing home was much shorter than the average woman.
Further, smokers or those with heart disease and other ailments were not offered policies. As expected, those individuals with those insurance issues generally did not live long in a nursing home. By excluding these individuals and by pricing the policies at a higher rate for men than for women, the underlying schematic was unsustainable and inaccurate.
As a result, a number of long-term care insurance companies have gone bankrupt or are under receivership in some states. Genworth is likely the largest of the companies that offer this insurance. It has settled the case referenced above which will allow it to raise premiums significantly or to cash out certain policies. In the settlement, for those policies sold with unlimited “lifetime benefits” and inflation protection, if you wish to maintain that policy, the rate increase will be over 200% this year. There may be additional increases in future years.
For those policies with lifetime benefits without significant inflation protections, the premium increases will only be 57% this year. For those policies that have limited benefits but also have inflation protection, the policy premiums will double.
If you have a Genworth policy, you have likely received one of these notices. There are a number of options being offered to maintain the insurance. One option may change the policy from a lifetime benefit to a five-year benefit with a benefit cap of $350,000 in some circumstances. The monthly benefit may be capped at $5,800.
Another option offered is continued benefits to maintain the monthly benefit amount but with a lifetime cap of only $50,000. There are also a number of reduced benefit options which are available with a variety of annual premiums which may be acceptable. These contain a mixture of reduced benefit periods through either three years or five years and lifetime benefits which vary and annual premiums which also vary.
These policies were sold throughout the country and are considered some of the better policies available. It seems likely that more litigation will follow in other jurisdictions and most importantly, if these changes are not successful in stemming the red tide at Genworth, they will be making additional policy premium increases or facing bankruptcy. It also seems likely that when GE Capital moved all these policies to Genworth, there was a concern at that time that these policies were not sustainable.
For more information, please contact your insurance agent or financial planner.