Long-term Care Insurance and Rising Premiums

Are you prepared for premium hikes in your long-term care insurance policy? You should be. Many of the biggest and most respected companies that issue both individual and group LTC policies have either raised premiums on existing policies already or have announced plans to do so soon.

Reasons cited by the companies center on unexpectedly high payouts to policyholders due to greater use of home-care benefits and longer stays in skilled-care facilities. There might be another reason: In their competitive zeal to sign up people for LTC policies, insurance companies low-balled premiums and have belatedly realized that they'll have to raise them.

Whichever is the case, the trend toward rising premiums on long-term care insurance policies is expected to continue, if not accelerate. That means you need to prepare for the possibility of a big premium hike — perhaps even multiple premium hikes — whether you already have an LTC policy or you plan to buy a policy in the future.

If you're considering LTC insurance

Keep in mind that, unlike many types of insurance whose premiums stay the same, LTC policies can increase premiums with the approval of the state insurance commission. Neither the insurance company nor the insurance agent is likely to be very clear explaining this, but you should ask whether and by how much the company has raised premiums in the past.

Also, be wary of any policy that's considerably cheaper than similar policies. A steep discount to the competition might be a good indicator that the insurer will need to boost premiums sooner than competitors to keep pace with costs.

Most important, before buying a policy, you need to look well into the future to see if you can afford the possibility — indeed, the probability — that your premiums could rise substantially. I recommend that you consider a worst-case scenario in which your premiums could rise by 50 percent or even double between the time you sign up for the policy and when you're likely to receive benefits.

Don't buy a policy that's so expensive in relation to your household budget that you couldn't afford a big premium increase. It would be unfortunate to have to drop a policy or severely curtail your coverage later on, just before you need the benefits. This is a critical step in planning for long-term care.

What if you currently have an existing LTC policy? >>