What to Do If Premiums for Long-Term Care Insurance Increase

If you have a long-term care policy, especially an older one, you may eventually receive a letter stating that your premiums will increase. While this change may be an unpleasant surprise, you will likely have several options for moving forward, and there is no reason to panic.

In this Insight, we review best practices when evaluating proposed options from your insurer, their pros and cons, and how to choose an optimal path based on your personal financial situation.

Why Can Premiums for Long-term Care Insurance Increase?

When you sign a contract for long-term care coverage, you may have reasonably assumed that your premiums are fixed. However, while an insurance provider cannot decide to increase your premiums on a whim, they can get authorization from the state insurance commissioner to do so. 

With policyholders living longer (and thus retaining their policies longer) than many carriers originally estimated, the whole industry is under pressure. Premium increases are generally not targeting individuals, but are conducted as part of large-scale changes for groups of policyholders.

How much—and how often—can these premiums increase? Requirements vary on a state-by-state basis. In many cases, the insurance company may be granted a smaller increase than originally requested. Still, those providers can request subsequent and repeated increases, including as soon as the year after the original premium increase was granted. Insurance carriers simply seek to fund future claims and stay solvent, and state regulators are motivated to help.

Common Options When Premiums for Long-term Care Insurance Increase

What might your premium increase letter say? In most cases, the insurance company will offer one or more of the options outlined below.

Option One: Reduce your monthly or daily benefit

A monthly or daily benefit is the maximum amount that the insurance company will pay in one month or one day. Typically, any unused amount can be used for future periods if the total amount does not exceed the policy’s maximum benefits. 

Option Two: Reduce the benefit period of your contract

Some older policies offer lifetime benefits. In this case, the insurer will likely provide an option to reduce it to a fixed period, such as five to seven years.

Option Three: Increase the elimination period

An elimination period is the period of time that will pass between your policy being triggered and when you start receiving payment for services. This gap may be analogized to a deductible for health or automotive insurance.

A typical waiting period is 90 days. While you can increase this period to six months for some savings, this change will likely have a modest impact on your premiums.

Option Four: Reduce inflation coverage

Policies are sold with several inflation protection options. A common option to mitigate premium increases is reducing future cost of living adjustments (COLA).

Key Considerations When Facing An Increased Premium for Long-Term Care 

Your best course of action when facing a premium increase will depend on your personal financial goals and circumstances.  If you can afford to do so, you may of course choose to keep the policy as-is and pay the increased premium. Working through the considerations below will help evaluate whether the policy can still offer you sufficient value to justify the added expense.

• Compare current healthcare costs for a nursing home or home healthcare in your area to your current (or proposed) monthly benefit. Depending on the difference, this evaluation may help you feel comfortable taking on more risk by reducing the benefit amount.
• Consider the inflation options. If you are in your 80s, you may be comfortable with a lower COLA than if you are in your 60s.
• Consider statistics for the length of long-term care needs. Currently, the average nursing home stay is about three years. When weighing premium increase options, a fixed period might be more appropriate than a lifetime benefit. A three-year policy may be sufficient if you have enough assets to pay out-of-pocket for a longer illness. Concerns about Alzheimer's, on the other hand, may steer you towards a longer period of care.
  
  

If you find that none of the options your insurer provides is the right fit, consider calling to ask for a different package of options better suited to your long-term care needs and financial goals. In some cases, your insurer may be willing to work with you to keep your business. If not, competitors may offer more flexible options (though this may mean different benefits from what you've previously paid for).

Get Help Shaping A Personalized Insurance Strategy

If a policy premium increase letter crosses your doorstep, it can be time-consuming and difficult to figure out the right move. 

We recommend consulting with a financial advisor to help you determine the best option or combination of options for your financial, long-term care, and estate planning goals. If you need assistance, our team at Wealthstream Advisors is here to help. We invite you to reach out and schedule an introductory call.