Choices When Facing A Long-Term Care Insurance Rate Increase

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Contributor, Benzinga
May 19, 2022

If you purchased long-term care insurance in the 1990s there’s a decent chance you’ll face receiving an increase in the premium notice. There are a number of reasons long-term care insurers are seeking increases. Plus, some new valuable information can help as you consider your options.

It is important to understand that insurance companies cannot arbitrarily raise premiums on long-term care policyholders.  They must first seek and obtain state approval after a diligent process of proving financial need.  Increases can only be sought for a class of policies, never for an individual here or there.

Profitability, or lack thereof, cannot be a reason for an insurer to request a rate increase.  Rather the insurer must demonstrate a significant change in expectations, such as greater utilization of policy coverage than expected.  For consumers, this is actually is good news, demonstrating that people are indeed using the insurance coverage they purchased and paid for.

In general, there are two components of policies that typically are found within policies that have already, or likely will, seen a need for a rate increase.  Individuals purchasing long-term care insurance in the 1990s and 2000s often included an inflation growth option.  A majority of purchasers selected the option whereby benefits grew at a rate of 5 percent compounded annually.

In the historic low interest rate environment that we have experienced for the past years, this formula was unsustainable.   Similarly, policies offering unlimited or lifetime benefit payouts have generated higher utilization than initially anticipated.

Policyholders Given Options 

Contrary to common perception, when a rate increase is needed and approved, long-term care insurers provide consumers with options.  A just-released analysis from the American Association for Long-Term Care Insurance (AALTCI) reports what consumers facing a rate increase do.  It can provide valuable insight into your choices.

According to the analysis, some 50-to-60 percent of policyholders facing a rate increase choose to pay the increased premium.  This is likely because they understand they have aged since purchasing the coverage and, thus, are closer to the risk of eventually needing benefits.

Those who spent the time seeking new coverage almost assuredly found that equal benefits would cost 2-to-4 times as much as the increased premium.  If they are in their 70s or have health issues, they likely found no coverage would be available to them.

Adjusting Benefits May Be A Sound Option

According to the Association’s analysis of long-term care insurance rate increase responses, between 20 and 30 percent maintain their coverage choosing one of the policy adjustment offers.

For most, this means dropping future policy benefit growth from the original 5 percent compounded to an alternate option.  This could be anywhere from zero to 3 percent.

Financial experts note that facing a rate increase is a good reason to take a wholistic review of how long-term care insurance fits into your current situation.  Has the value of your retirement assets and income increased?  What about house value?  For many, there is a realization that their long-term care insurance benefits are sufficiently valued for their perceived needs.

An Option Where You Pay Nothing More

The third option, according to the Association’s analysis, is the non-forfeiture option.  Here the policyholder chooses to stop paying premiums altogether.  In exchange, the insurance company, offers some level of available future benefits.  Often, this amounts to the amount of premium already paid by the policyholder.

Between 10 and 20 percent of policyholders are currently choosing this option according to AALTCI.   For some, it’s clearly a change of mind in terms of the need for or the value of owning long-term care insurance protection.  For others, it can be the result of some meaningful personal financial analysis.

For example, an individual who has paid into their policy a sum of say $60,000 might view that as a sufficient amount of long-term care coverage due to the increased value of their assets and income.  Since most long-term care is needed at home, with many needing care for a year or less, a benefit pool of $60,000 can be stretched to supplement retirement assets and Social Security income.

Facing a rate increase is never a pleasant proposition.  The recommended first step is to carefully read everything sent you from the long-term care insurance company.   They will likely provide a customer service number you can call to seek answers to your questions and further explanations of the available options being offered.

Be sure to take note of deadlines.  Failure to reply in time could result in a potentially costly mistake.  Individuals seeking new policies and long-term care insurance costs can avoid the risk of future rate increases by selecting policies with rate guarantees.  To find a specialist, contact the American Association for Long-Term Care Insurance.  Call 818-597-3227 or visit the Association’s website.

Specialists can share ways to utilize limited pay policy options or those plans available today that offer rate guarantees as a way to avoid the risk of future increases.  Another benefit that will help you sleep more soundly.