You purchased long-term care insurance, you’ve been paying the premiums, and now you’ve received a letter stating the cost of insurance is going up. You may be wondering why the increase, and what you should do about it?
With Americans living longer than ever, most of us will need some extra help with everyday activities as we age. Studies show up to 70% of people turning 65 can expect to use some form of long-term care during their lives. You’ve chosen long-term (LTC) insurance to help pay for these costs.
One benefit of having LTC insurance is that it goes beyond what your health insurance may cover, including Medicare and Medicaid, which may only pay for some of these services and have many restrictions. LTC insurance reimburses you for services needed to help you maintain your lifestyle if age, injury, illness, or a cognitive impairment makes it challenging to take care of yourself.
The impact of having LTC insurance in place includes protection of your long-range financial security and help for your loved ones who might otherwise have to figure out a way to pay for care.
Long-term Care Insurance Costs
While LTC insurance can play an important role in your long-range financial plan, this coverage isn’t cheap. This is because long-term care, like nursing homes and assisted living can be pricey. The cost of LTC insurance is based on a variety of factors.
Source: Forbes Advisor, 2024.
Average Costs of Long-term Care Insurance
According to the 2024 American Association for Long-Term Care Insurance (AALTCI) Annual Price Index survey, the average annual premium for a $165,000-benefit policy with no inflation protection is $950 for a single male (age 55) and $1,500 for a single female (age 55). For a couple where both are age 55, the average combined annual premium is $2,080.
When the same long-term care insurance policy is purchased at age 60, premiums rise. The average annual premium for a single male is $1,200 and $1,900 for a single female. Couples can expect to pay around $2,600 for a combined yearly premium.
Long-term Care Insurance Premium Increases Explained
For a traditional long-term care insurance policy, the premium can increase over time. This can be upsetting if it’s not clear why the rates are going up. We find the two most common questions that arise when our clients receive a letter stating the intended increase are:
- Why are the rates going up?
- What should I do about it?
What’s Behind an Increase in Long-term Care Premiums?
First, it’s important to understand that insurers cannot single out specific policyholders. They must file rate increases for a ‘Class’ of policyholders. That could be everyone who bought a particular policy in specific state(s) with specific policy features.
Second, insurers must demonstrate specific reasons that a rate increase is needed. Lack of profitability is not a valid reason to request a rate increase.
There are a variety of reasons an insurance company may request a rate increase, the primary reasons listed below:
- More claims are filed than expected, and amounts are higher than expected due to inflation
- Claims are lasting longer than anticipated
- Policy holders are hanging onto their policies longer than anticipated
- Investment returns are lower than estimated by the insurance companies
Your Options to Avoid a Rate Increase
Typically, long-term care insurance providers offer some options to avoid the rate increase, the most common being:
1. Reduce the benefit amount: The benefit amount is the maximum amount that can be reimbursed for long-term care expenses on a daily or monthly basis.
2. Reduce the benefit coverage period: The benefit coverage period is the length of time that an insurance company will pay benefits for covered care.
3. Increase the elimination period (deductible): The elimination period is like a deductible. It is the number of days of covered care that you must pay for before your coverage begins to pay benefits.
4. Reduce the inflation growth option: This option helps your coverage keep up with the rising cost of care by growing your daily or monthly maximum and coverage maximum over time.
Policyholders often wonder which of these options is in their best interest, or would it be best to just pay the increase. What’s the best answer? Well, it depends. It depends on a variety of things: how long a policy has been held, the current amount of the daily benefit, other resources the policyholder can use to cover long-term care costs, the affordability of the higher premium, and more.
Why Adjust Your Long-term Care Coverage?
Adjusting coverage can make sense when your policy has grown a lot in value. Perhaps the daily benefit has grown from $200-per-day to $400 (or $12,000-per month), which might be sufficient for anticipated care costs. Other people find their savings and assets are now worth far more than when they bought the policy, allowing them to cover more of the financial risk themselves.
In these cases, it can make sense to consider reducing or dropping the inflation growth option, which will keep the current benefit in place, but slow or eliminate future increases. We often recommend this as the first place to look to avoid the rate increase, as it allows the policy to keep the current benefit amounts in place.
Alternatively, if all the policy benefits are still determined to be needed, and the increased premium still fits into a policyholder’s monthly budget, paying the higher premium may be the right decision for you.
Making the initial decision to obtain long-term care insurance coverage involves weighing a number of factors, which are important to revisit when receiving a premium increase letter.
If you’re in need of professional guidance about how to proceed after encountering a rate increase, please reach out to your Financial Planner. We’re happy to help.
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