Many insurance companies have recently decided to stop offering individual long-term care (LTC) policies. In addition, companies still offering LTC policies have petitioned state insurance departments for permission to increase premiums. Why is this happening and what does it mean for you, as a policyholder?
Insurers have begun to see that their policyholders are holding on to policies longer, and are also using more of their benefits than expected. Insurance carriers are also realizing that the actuarial assumptions they used to price LTC coverage 10 to 15 years ago are not coming to fruition. Future bond yields are not currently projected to provide companies with profitable enough returns on their required reserves.
These are the business reasons behind the rate increases. But what are you, as an individual policyholder, to do? When you receive notice of a rate increase on your policy, you have three options:
1) Accept the premium increase to keep your current benefits in force.
2) Refuse the premium increase and let your policy lapse.
3) Modify your policy benefits to maintain your current premium.
Here are some things to consider before you decide which option may be right for you:
Do you still need the coverage?
Have your assets grown to a point where you may be able to afford to handle the risks of long-term care expenses? If the cost of care would no longer represent a catastrophic risk to you, you may decide to let your policy lapse. You would avoid future premium increases and begin putting premium savings toward other financial goals.
Do you still need or want coverage, but don’t want to pay more than your current premium?
- Consider adjusting your elimination period. This is the waiting period before your benefits kick in. Moving from a 30-day to a 90-day elimination period could save you up to 20% in premium costs.
- Review your inflation rider. This rider increases your daily LTC benefits each year, to make sure they keep up with actual costs. If you have a 5% compound rider, that is probably your most expensive option. By reducing your inflation protection to a 3% compound or 5% simple rider, your benefits will still grow with inflation, but at a lower premium.
- Reduce your daily benefit. A $200 daily benefit will still cover the majority of facility costs, and probably all of your home-care costs.
Before lapsing coverage, compare costs
The price increase on your current coverage may still be less than what you would pay for a new, comparable policy today. Think of it this way: The premiums you have paid over the past 10 to 15 years have simply been less than the carrier can continue or pass along to new policyholders.
A premium increase is never pleasant. However, it’s wise to work with an insurance carrier that is properly funding its future liabilities and taking proactive steps to maintain its stability—rather than a company that avoids price increases simply to keep customers.
Feel free to discuss your LTC insurance needs with your Wealth Advisor and your insurance agent. We can help you assess ways to adjust your premiums, or help you decide whether it’s appropriate to self-insure your own long-term care needs.
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