Surprised by a Spike in Long-Term Care Premiums?

Close to a dozen of our clients reached out to us last year seeking assistance with the review of their existing LTC insurance policy. What triggered their outreach? They received letters from the insurance companies indicating they are seeking to increase premiums by as much as 264%(!). This is not an exaggeration. The triple-digit projected increase was the actual figure mentioned in the letter received by our client.

Fortunately for this client, Maryland caps premium rate increases at 15% per year. However, at this rate, the premium may double in less than five years.

So, what are your options?

Before we delve into them, here are the basics of a typical traditional LTC policy: 

• Daily benefit: the maximum amount the policy will cover each day.
  
• Waiting period: the number of days to wait before the policy provides benefits.
  
• Lifetime benefit: the total amount the policy will pay.
  
• Benefit period: the number of years the policy will provide benefits.
  
• Cost of living adjustment: annual benefit inflation adjustment.

With the basics covered, let’s dive into your typical options if/when you receive one of those unexpected LTC premium increase letters.

1.) Keep the benefits unchanged and accept the premium increase

There is nothing wrong with this approach, as long as you understand that your premiums will likely continue to increase in the future.

This decision is easier for those who need LTC coverage as part of their overall financial plans and can afford the increased premium.

2.) Change the policy to a paid-up status

This election will usually result in a reduction in your benefit, and you will no longer be required to make any premium payments.

This reduction can be significant. For one of our clients, the total lifetime benefit would be reduced from $417,000 to $41,000.

This selection is appropriate as long as you’ve determined that you no longer need the policy or are comfortable with the reduced benefit amount.

We strongly suggest that you speak with your financial advisor before making this election.

3.) Reduce the total lifetime benefit, keep inflation adjustment and daily benefit unchanged

If this option is available, it would frequently be our suggested approach.

Inflation adjustment and higher daily benefits are particularly important for those contemplating retirement and young retirees.

4.) Reduce the daily benefit, keep inflation adjustment and total lifetime benefit unchanged

This option is a good choice for those with significant fixed income in place, such as Social Security and pension income.

It is also appropriate for younger retirees with substantial savings and above-average life expectancy.

5.) Reduce or eliminate the inflation adjustment, keep the daily benefit and total lifetime benefit unchanged

In many cases, we are reluctant to suggest this option. The elimination of the inflation adjustment will likely have a significant negative impact on the benefits in the long run.

In other words, the value of the benefits will decline each year. The costs of medical expenses tend to rise at a much higher rate than inflation.

This option is appropriate for those who are in the middle of their retirement journey, usually in their late 70s or early 80s.

The information in this letter is, of course, for educational purposes only. Please consult with your financial advisor or conduct your own due diligence if you decide to revisit your LTC needs or insurance coverage.

We strongly believe that your LTC insurance decisions should be made in conjunction with your overall financial plan. Focusing solely on the immediate cost and benefit of LTC insurance is not likely to be the optimal choice.