Unlike medical insurance premiums which may increase every year, LTCI premiums are based on your age and health when you buy coverage. Yet long term care insurance (LTCI) carriers have a history of rate increases when they aren’t performing as originally priced.
Why are nearly all insurance companies raising rates?
First, insurance companies thought more policyholders would lapse or drop their policies, but the opposite happened. People kept them, recognizing their value. When a policy is dropped that gives the insurance company the premium but no risk, which lowers everyone’s price.
Rather than policies lapsing at 4%-5% a year, less than 1% of policy owners lapsed their policies.
In addition, higher costs for LTC services and lower interest rates are to blame. When carriers promised 5% compounding benefit growth to customers but interest rates remained low at 1-2% year after year, they couldn’t deliver on their promises without increasing rates.
When it comes to LTCI rate increases, it’s not a matter of if, but when. Take this into consideration when buying your policy so you know what to expect when a rate increase happens.
If you’re experiencing an LTCI rate increase, here are three options.
1. Pay the Rate Increase
Your first option is to pay the increase your insurance carrier presented. Your coverage remains the same and you’re still locked into lower rates than if you purchased a new policy today at your current age.
2. Keep Your Current Premium
If you can’t afford the rate increase, LTCI carriers will offer the option to reduce your benefits to keep your current premium. This may mean reducing the daily or monthly benefit, increasing your elimination period, reducing your benefit duration (years of coverage), or reducing inflation protection.
Before you consider this option, be aware that you can’t change your mind and increase benefits later if your health diminishes. However, if you can’t afford the rate increase, reducing your benefit is better than stopping coverage altogether.
3. Let Your Policy Lapse
This is the last resort as you lose the protection going forward, after having the protection should you have needed it.
When policyholders experience a large rate increase, some may think lapsing their policy and starting over is in their best interest. In nearly all cases, a new policy at your current age and health will cost more than your current policy with the rate increase. Not to mention, you may not be eligible for coverage due to health reasons.
If you allow your policy to lapse due to a rate increase, you may be eligible for contingent nonforfeiture. This means if your rate increase reaches certain levels, you may be eligible to stop paying premiums and still access a benefit based on the premium dollars you paid over time.
Before making your decision, educate yourself on your options and speak with your financial advisor. It may be in your best interest to review your financial situation and pay the LTC rate increase and keep your current policy benefits.
LTC Consumer is an independent, free online service to help consumers understand what long term care insurance is, how it works, and how to evaluate coverage options. Our mission is to provide an educational, no-pressure resource for learning about long term care planning, with the opportunity to speak with specialists who can help them.