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What to Do If Your Long-Term Care Insurance Policy Premium Increases
October 27, 2021 | By Tracy Shar, CPA, CFP®
If you have a long-term care policy—especially an older one—you might receive a letter one day saying your premiums will increase. Don’t panic. You have options.
When you sign a contract for long-term care coverage, you might be under the assumption that your premiums are fixed. This is not totally true. 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 the carrier originally estimated, the whole industry is under pressure. They are not targeting one individual; these requests are meant for a group of policy holders.
How much—and how often—can these premiums increase? That is up to the state. It is not uncommon for an insurance company to be granted a smaller increase than the amount originally requested. Still, those providers can request increases over and over again, including in the year after that original premium increase was granted. It is the insurance carriers’ goal to be able to fund future claims and stay solvent—and the state has an incentive for them to do so.
What might that premium increase letter say? More than likely, it will offer a list or combination of options.
Option #1: 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 #2: Reduce the benefit period of your contract
Some old policies are for lifetime benefits. The insurer will likely give you an option to reduce it to a fixed period, such as five to seven years.
Option #3: Increase the elimination period
An elimination period is the waiting period before you get paid, like a copay. A typical waiting period is 90 days. You may want to increase this to six months, though this will likely have the least impact on your premiums.
Option #4: Reduce the inflation coverage
Policies are sold with several inflation options. You might consider reducing the future cost of living adjustments (COLA), especially if your monthly benefit has grown a lot since inception.
What to consider when choosing between options
When deciding what option is better for your specific situation, consider a few things.
Compare the current healthcare cost for a nursing home or home healthcare in your area to your current (or proposed) monthly benefit. This may help you feel comfortable taking on more of the risk by reducing the benefit.
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 the statistics for the length of long-term care needs. Currently, the average nursing home stay is about three years. When mulling over your premium increase options, considering a fixed period might be more appropriate than a lifetime benefit. A three-year policy might be fine if you have enough assets to pay out-of-pocket for a longer illness. Concerns about Alzheimers, on the other hand, may steer you towards a longer period of care.
If you find that none of the options your insurer provides works for you, you may call the company and ask for more options or a combination of options to meet your long-term care needs and financial goals.
And of course, if you can afford to do so, you may choose to keep the policy as-is and pay the increased premium.
If a policy premium increase letter crosses your doorstep, it can be time-consuming or difficult to figure out the right move. We recommend consulting with your financial advisor to help you work out the best option or combination of options that match your financial, long-term care, and estate planning goals. At Wealthstream Advisors, we’re always here to help.