In consideration of those who own LTC insurance protection, we know you might be receiving disturbing notices about premium hikes. We are available for a conversation and review as your situation warrants. As well, we offer the following information about the situation from Meredith Pensack, an expert in the LTC field.
Addressing a Long Term Care
Insurance Premium Increase
Older long term care insurance policies have undergone rate increases, some of which have been significant. Some of the reasons for the increases include:
- A history of approximately 15 years of unusually low interest rates. The insurance carriers’ corporate investments didn’t earn close to the 5% growth in benefits that many of the older policies included. The combination of guaranteed benefits growth for policyholders and a prolonged shortfall in the carriers’ earnings created a significant financial gap for the insurance carriers.
- Policyholders are living longer and using more benefits before they pass away. Advances in medicine and support services have resulted in increased longevity for policyholders. But as policyholders live longer, it’s more likely that they will develop memory issues and/or require assistance, thus triggering more claims than were originally estimated on the policies.
- Lapse rates (voluntary cancellation of policy) have been extremely low for LTC insurance. Older policies were priced with the assumption that 5% of policyholders would lapse their coverage, but actual lapse rates have been less than 1%. This means that more policyholders are holding onto their policies, resulting in significantly more claims being paid out than were estimated.
As upsetting as it is to get a rate increase notification, I know what it’s like to experience that type of increase. In fact, most people have also experienced significant rate increases on their health insurance. As a self-employed insurance broker, I’ve experienced annual double digit increases for my private health insurance for many years. And in addition to those rate increases, the benefits have been reduced every year through higher deductibles and copays. Long term care insurance premiums historically haven’t increased at all until recent years, and most policyholders’ benefits have grown significantly since purchase; many of them have doubled in value.
However, not everyone can or will want to accept the increase even though in most situations the new premium will still be an excellent value for the benefit provided. If the rate increase letter offered specific options to reduce the premium and associated benefits, the policyholder should carefully consider the options before making a change. If the rate increase letter did not include any options, or if the client would like to see more options, the policyholder should contact the insurance company’s Customer Service Department to request a variety of choices at different reduced premium levels. Policyholders need to understand that regardless of rate increases, they can always reduce their benefits and premium in the future. However, once benefits are reduced, they cannot be increased.
Assuming that the policyholder’s health is still good, a hybrid LTC insurance policy is an option that could be explored. This type of policy has a guaranteed premium (can never increase) and returns a tax-free death benefit if care isn’t needed.
Unfortunately, most policyholders’ health is not as good today compared to years ago when they first purchased their policy. And the statistical likelihood of needing assistance is 1 in 3 for males and 1 in 2 for females. This is a sobering reality! Researchers refer to the expected increase in cognitive decline among elders as an “Alzheimer’s Tsunami.” The number of people expected to be diagnosed with a severe cognitive impairment or Alzheimer’s disease in the coming years is predicted to increase dramatically. Nearly 10 million people worldwide are diagnosed with dementia each year, joining the 55 million others who already have this devastating condition.
My suggestion is that if an increased premium is affordable, the policyholder should accept the increase and re-evaluate again in the future, knowing that it can be reduced at any point if necessary. As unpleasant as it is to be notified of a premium increase on a long term care insurance policy, the protection can prove to be invaluable both to the policyholder as well as to loved ones in the future.
Meredith Pensack has specialized in long term care planning since 2003. In addition to representing traditional LTC insurance options, she also represents hybrid options that include a death benefit. Meredith was voted “Top 10 Women Insurance Agents” by Boston Women’s Business Journal.
“By allocating nothing for long term care, you allocate everything.”