What choices do I have when my Long Term Care premium increases?

The Facts

As a policy holder you have several choices. Currently, 70% of the people over 65 years of age here in the USA need some type of LTC care.  According to the U.S. Census Bureau, in 2010, 66% of nursing home residents were women, and only 16% of all residents were under the age of 65. The median age of residents was 82.7 years.  You purchased this protection so that you didn’t place a financial and emotional burden on your family.  So you are left with several choices which you may not know you had. 

1. Accept the price increase and just pay the new premium.

A price increase means that the company has to keep up with the increasing cost of long-term care coverage.  While this may sound discouraging to you, it may help to look at it from another view point.  If you were to buy your current policy at your current age, it would cost you significantly more than the new premium with the current increase. 

Additionally, you may not be able to purchase the same features and benefits that are in your current policy.  So, while the new price is higher than it was last year, it is still is a significant savings over what you would have to pay if you were to buy it today.  If the coverage is still affordable to you and you still want these features, this may be your choice.

2. Keep the current premium and reduce the policy’s daily benefit amount to the extent necessary to bring benefits in line with cost (e.g., from $250/day down to $200/day)
3. Keep the current premium and reduce the policy’s benefit period to the extent necessary to bring benefits in line with cost (e.g., from a 5-year benefit period down to 4 years)
4. Keep the current premium and reduce the policy’s benefits inflation rate (if the policy included an inflation rider) to the extent necessary to bring benefits in line with cost (e.g., from a 5% inflation rider down to a 3.5% inflation rider)
5. Cancel the policy

If you decide that the premiums are not affordable, or you do not need the original level of coverage, then you could choose options 2-4 above. These options will maintain your long-term care and at the same time reduce your annual premium.

Most people choose to decrease their benefit period especially if it is longer than 5 years.  Many policies sold 10 or more years ago may have been sold with lifetime benefits.  According to the Genworth 2012 Cost of Care Survey, the average length of stay in a long-term care or assisted living facility was 2.8 years.  In fact, most claims are even shorter than this. So if you believe that you will not need coverage for more than 3- years you may choose to reduce your benefit length to 3- years and reduce your premium this way.

Your current policy may have an inflation rate rider on it.  If you have had the policy for 10 or more years, you may have already received the most leverage on the rider.  You also want to consider your age, the older you are it may be more appropriate to reduce the inflation rider than if you were younger.  If you are younger than 50 years old, you would still want to gain the inflation protection from several more decades of inflation that your rider provides.

The final option would be to reduce the daily benefit amount.  Most clients initially purchase the amount of daily benefit that they can afford at that the time they buy. The daily benefit is typically barely enough to cover the actual amount that LTC will actually cost.  For these reasons, it should be the last area to attempt to reduce the cost of long-term care.

This really is the choice of last resort. As I mentioned earlier, if it is simply unaffordable and none of the above choices reduce the premiums to affordability, then the last resort is to cancel.  The only other reason to cancel the policy would be if your financial means had increased so substantially that you were able to pay all the costs of any long-term care form your own assets (self-insuring).

No one likes to get a notice of increased cost for something they own, especially a long-term care insurance policy. If you do receive an increase in your long-term care policy make sure you contact a Retirement Solutions Specialist to discuss your options.  Besides helping you with the decisions above, there are several newer products on the market today that they can educate you on.  Because of these newer products design, you may benefit from them in the long run.

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