Part 2: My LTC Premiums Are Increasing…What should I do?

March 12, 2018  |  

Part 2: My LTC Premiums Are Increasing…What should I do?

Key Takeaways

  • Don’t try to make important LTC decisions in a vacuum.
  • Your ultimate decision should be made within the context of your overall financial plan.
  • If faced with a hike in your LTC premiums, you will be offered a few different options to consider (see list below).

In Part 1 of our Long-term Care (LTC) post, we explored challenges in the LTC marketplace and the reasons why many policyholders are experiencing premium rate increases. This post will focus on the options and decisions that policyholders should consider when faced with higher LTC premiums.

If you’ve been notified that your LTC premium is going up, your insurance company probably offered several options. Not every insurance company will include the five options listed below, most will offer No.1 and No. 5, plus at least one option from among No.2 through No. 4. Just note that requirements for what is made available vary by state and some insurance companies offer more flexibility than others.

OPTION 1: Keep the policy as-is and just pay the new premium.

In general, this is the most appealing option–if it’s affordable. It’s frustrating that you can’t get the same features in your updated policy that you received in your original policy. But, the reality is that the original pricing was probably wrong, and the new pricing is correct. While more expensive, the new pricing can still be a good value considering the benefits you receive. This is especially true in the LTC insurance context because policies facing premium increases are generally still much less expensive than the coverage would cost you if you had to go out and get a new policy today.

OPTION 2: Keep the current premium and reduce the policy’s benefit period so you can bring your benefits in line with your costs (e.g., go from a 5-year benefit period to a 4-year benefit period).

When considering what to reduce, start with the benefit periodespecially if that period is 5+ years in duration. The reason is simple: The average long-term care insurance claim is only about 2.8 years (1040 days). The median claim is even shorter, as the average is distorted by a small number of extremely long claims.

OPTION 3: Keep the current premium and reduce the policy’s “benefits inflation rate” so you can bring your benefits in line with your costs (i.e. inflation rider to 3.5-percent from 5-percent). This assumes the policy included an inflation rider in the first place.

For many policyholders, it can make sense to reduce the inflation rate on the policy. If you’ve had the policy for at least 10 years–that’s often how long it takes before premium increases begin–you have already benefitted from the inflation rider. If you are older and unfortunately closer to the point at which you may either make a claim sooner or pass away sooner, the value of the inflation rider is limited going forward.

OPTION 4: Keep the current premium and reduce the policy’s daily benefit amount so you can bring your benefits in line with your costs (i.e. from $250/day down to $200/day).

Other than canceling your policy outright, the option of last resort for most of our clients (excluding those who bought LTC insurance at a very young age) is to reduce the amount of your daily benefit. In most situations, policyholders only buy enough coverage to meet the average cost of care in their area. Unlike the benefit period, which is usually above-average in length (implying some room to cut), the daily benefit amount barely covers costs at the time of claim in many cases. Again, cutting your daily benefit should be the last item on the chopping block, aside from canceling the policy.

OPTION 5: Cancel the policy.

If you and your advisor determine that the cost of coverage is now unaffordable, be prepared to cancel the policy. However, given the ways that coverage can be reduced to stay level with current premiums, don’t resort to this option unless there has been a substantial change in your needs—i.e. you don’t need the coverage since your wealth has increased to the point that you can afford to self-insure. Just remember that some insurers include “non-forfeiture” benefits. This means that even if you cancel your policy, a small paid-up policy may be left behind that is equal to the premiums that have been paid. Just don’t view this as a proactive policy strategy–it simply recognizes that there’s a small remnant left behind for canceled coverage.


Remember, it is very difficult to make LTC decisions in a vacuum. Your ultimate decision should be made in the context of your overall financial plan.  If you, or any of your loved ones, have recently experienced a premium increase, or if you have questions about LTC insurance in general, please do not hesitate to reach out. We’re always happy to assist.

Advisor is not a licensed insurance broker or agency and does not sell or solicit the sale of any insurance products.  Licensed individuals should be contacted for insurance product suitability and policy acquisition needs.

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About Patrick Melvin Jr.

Patrick D. Melvin Jr., is a Wealth Manager at Independence Advisors, LLC. Pat models client’s financial plans and works with the firm’s clients on financial planning areas such as retirement planning, investment planning and estate planning. CLICK HERE TO ASK PAT.

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