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.
If you already have an LTC policy
If you haven't yet had to endure a premium increase, you should nonetheless prepare for that eventuality. Once your LTC company announces a rate increase that you can't easily afford to pay, you have a few options.
Of course, you can drop LTC coverage, but that would probably be a shame. You could also shop for a different and less expensive LTC policy, perhaps a group policy if you have an individual policy. But that's probably a long shot, particularly if several years have elapsed since you took out your original policy, since premiums are based primarily on your age.
The most sensible thing to do is reduce the policy's level of coverage in order to reduce the premium to an amount you can afford. The insurer or your agent can spell out the options, which may include reducing the benefit period (the number of years of care the policy will cover). You might also be able to eliminate some of the optional coverage on your existing policy, such as the inflation kicker. You may also be able to reduce the amount of the daily benefit to bring the premium in line with your budget.
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