What You Need to Know
Many traditional long-term care insurance companies are realizing that the premiums being paid by existing policyholders are insufficient to satisfy all of the claims being submitted. As a result, these companies are seeking permission from state insurance regulators to raise premiums. These premium increases can be dramatic, and the impact on existing policyholders can be severe.
There are countless recent examples of these premium increases occurring throughout the country. In one case, existing policyholders saw their premiums increase by 70% in 2018 with an additional 34% increase scheduled for 2019. The $919.23 bi-annual premiums paid by these policyholders in 2017 will soon become $2,094.01. Unfortunately, this example is not unique.
When you receive a rate increase notice from your long-term care insurance provider, you must determine how to proceed. If your reasons for initially purchasing the policy are obsolete, you may want to consider cancelling the policy. However, this will leave you without long-term care coverage, and your past premium payments will be sunk costs. If your reasons for initially purchasing the policy still exist, you should explore options that will allow you to continue owning the policy. These options include:1) paying the increased premium, 2) reducing the policy’s benefits in order to maintain your existing premiums, or 3) reducingor eliminating any inflation protection rider attached to the policy in hopes of lowering premiums.
Before making any decisions, you should consider the fact that the average nationwide cost of long-term care is almost $9,000 per month.1
Accordingly, paying increased premiums will still be significantly less expensive than paying for care out-of-pocket. If these increased premiums are truly cost-prohibitive, an affordable policy with reduced benefits may still minimize your exposure to exorbitant out-of-pocket costs.
As an alternative to traditional long-term care insurance, you may want to consider purchasing a life/long-term care hybrid insurance policy. These hybrid policies combine the benefits of permanent life insurance with the protection of long-term care insurance. With a hybrid policy, you can access the death benefit to cover the costs of long-term care. Upon your death, the unused portion of the death benefit is distributed to your beneficiaries. Unlike with traditional long-term care insurance, every premium paid for a hybrid policy will be utilized to benefit you or your heirs. If you never need long-term care, your heirs will enjoy a larger death benefit. Additionally, because these policies are structured as life insurance products, you will not be subject to unexpected premium increases.2
Long-term care costs can have a significant impact on your financial goals. This impact can be minimized through proper insurance planning. Stifel’s Insurance & Annuities Solutions team is ready to help you consider your options.
1 Source: Genworth Cost of Care Survey 2020.
2 A hybrid policy is generally a universal life insurance policy with a rider that provides for long-term care. If long-term care is not needed, a death benefit is paid to your beneficiaries or you can surrender the policy for a majority or full “return of premium” option, in which you would receive the majority or your entire original premiums back (subject to possible tax implication and carrier availability). Riders that provide long-term care benefits may not cover all the costs associated with long-term care – costs that may be incurred during the period of coverage. You should review carefully all limitations in any policy you are considering and in the riders. Optional riders will incur additional cost. Return of premium must occur prior to the commencement of claims, assumes no loans or withdrawals, and is subject to each particular insurance company’s restrictions. A portion of the amount returned to you may have tax implications, which you should discuss with your tax advisor. Costs, restrictions, and other conditions may apply, and not all features and riders are available in all states. Guarantees are based on the claims-paying ability of the issuing company.