LTC Rate Increase Help
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This LTC Rate Increase Help Guide is designed to walk you through many of the issues as well as questions we receive and common answers regarding LTC rate increases and how to manage the decision-making process.
This page is for informational and educational use only. It it not meant to provide direct, personal, actionable advice; every policy and policyholder is different. Please seek the advice of the agent who wrote your policy or another trusted agent or advisor for direct personal questions and actionable advice.
This page is for informational and educational use only. It it not meant to provide direct, personal, actionable advice; every policy and policyholder is different. Please seek the advice of the agent who wrote your policy or another trusted agent or advisor for direct personal questions and actionable advice.
For a deep dive into WHY LTC premiums on older policies
have increased so much, click here to read our recent article.
First Things First - No one likes a rate increase
No one wants or likes a premium increase. And while "traditional" LTC insurance has never had guaranteed premiums, for too many consumers they were led to believe that their coverage, their company would not raise their rates. It was an unfair expectation. And then premiums increased more than anyone - inside or outside the insurance industry - ever expected.
For some policies there have been some whopper LTC rate increases - or a series of increases which have added up to 50%, 150%, 300% or more compared to the initial premium purchased. My personal policy which I bought in 2005 has increased 243% (almost tripled)! But when I compare the premium to the LTC benefits, it remains a great value, just for a lot more premium than I had originally planned.
For some policies there have been some whopper LTC rate increases - or a series of increases which have added up to 50%, 150%, 300% or more compared to the initial premium purchased. My personal policy which I bought in 2005 has increased 243% (almost tripled)! But when I compare the premium to the LTC benefits, it remains a great value, just for a lot more premium than I had originally planned.
Premiums are NOT being raised to "force" you to drop your coverage
You are NOT being singled out. By law you cannot be; nor can your premiums be raised just because you get older, develop problematic health conditions nor because you may have even filed claims.
Insurance companies cannot just increase premiums because they want to get out of the business - to drive people to just quit and cancel their coverage. Carriers can only increase premiums to make sure there will be enough money for any and all policyholders to receive their policy benefits if and when they would go on claim and to pay reasonable administrative expenses. While premium increases are unfortunate, they also reflect the need to continue to provide full coverage, full protection for you and all other policyholders.
Premiums can only be raised IF:
After a LTC rate increase, your premiums remain tied to and based on your original-issue age. Which is why you cannot ever replace your same LTC coverage benefits for less premiums - you would have to start over at a new, older issue age and equal coverage, equal benefits will cost even more than the premium increase.
Interestingly, even after all insurance companies have had LTC rate increases, some of which as we have noted here have doubled or nearly tripled the premiums, very few people drop their coverage. The "lapse rate" for LTC insurance - which is the lowest of any type of insurance - has hardly changed. For 30 years and through all the LTC rate increases over the last 10 to 20 years, less than 2% of policyholders voluntarily give up their coverage!
There is no "death spiral" with LTC insurance because most people keep their coverage even after a premium increase and because it costs even more than the rate increase to replace your coverage.
Insurance companies cannot just increase premiums because they want to get out of the business - to drive people to just quit and cancel their coverage. Carriers can only increase premiums to make sure there will be enough money for any and all policyholders to receive their policy benefits if and when they would go on claim and to pay reasonable administrative expenses. While premium increases are unfortunate, they also reflect the need to continue to provide full coverage, full protection for you and all other policyholders.
Premiums can only be raised IF:
- The insurance company can show your state department of insurance (DOI) that the additional premiums are justified to be able to continue to pay claims today and projected for many years into the future. The increases must be "actuarially justified." And the state DOI can say, "No," or approve a smaller increase.
- All policyholders in the state with the same policy "form" or "series" are all increased together.
After a LTC rate increase, your premiums remain tied to and based on your original-issue age. Which is why you cannot ever replace your same LTC coverage benefits for less premiums - you would have to start over at a new, older issue age and equal coverage, equal benefits will cost even more than the premium increase.
Interestingly, even after all insurance companies have had LTC rate increases, some of which as we have noted here have doubled or nearly tripled the premiums, very few people drop their coverage. The "lapse rate" for LTC insurance - which is the lowest of any type of insurance - has hardly changed. For 30 years and through all the LTC rate increases over the last 10 to 20 years, less than 2% of policyholders voluntarily give up their coverage!
There is no "death spiral" with LTC insurance because most people keep their coverage even after a premium increase and because it costs even more than the rate increase to replace your coverage.
Your Options - Simplified
If your LTC insurance company increases your premium you generally have three options:
OPTION 1:
About half of all policyholders facing a LTC rate increase choose Option 1. They keep their full coverage and adjust their budget to accommodate the higher premium. A tough pill to swallow, but keeping all your needed benefits is often still the best option. Take a deep breath and ask yourself: Can you afford the increase? If so, and if the coverage remains important and valuable to you and your family, then simply pay the increased premium and keep all of your coverage intact.
OPTION 2:
Most others make adjustments to their benefits - usually shortening the Benefit Period from lifetime to 6 years or 5 years to 3 years for example, or reducing the daily or monthly Benefit Amount, or a combination of both. It is important to note that reducing your benefits like this can be done at any policy anniversary - a benefit reduction does NOT have to be tied to a LTC rate increase. You may be able to accept a premium increase today, but knowing you could lower your benefits in the future if you needed to reduce premiums at that time is also worth considering.
Some companies offer the ability to reduce the future rate (percentage) of benefit inflation increases. This is often called a "landing spot." For example if you have had a 5% automatic benefit increase rider, the company may agree to not raise your premiums if you accept only 3% benefit increases going forward. These inflation percentage change offers are usually only available for a limited period of time around the LTC rate increase implementation date.
OPTION 3:
Very few people actually take the "Reduced Paid-Up" benefits and walk away. This option which is made available whenever there is a premium increase allows you to stop paying premiums but not lose all of your coverage; you keep a maximum benefit pool of money equal to your total premiums paid-in over the years. Note that this option is only available during a new rate increase implementation window, you cannot ask for it after you have accepted a premium increase and/or just reduced your benefit parameters.
- Accept the increase and continue your same benefits.
- Reduce your benefits to offset or reduce the amount of the premium increase.
- Stop paying premiums and receive a "Reduced Paid-Up" policy.
OPTION 1:
About half of all policyholders facing a LTC rate increase choose Option 1. They keep their full coverage and adjust their budget to accommodate the higher premium. A tough pill to swallow, but keeping all your needed benefits is often still the best option. Take a deep breath and ask yourself: Can you afford the increase? If so, and if the coverage remains important and valuable to you and your family, then simply pay the increased premium and keep all of your coverage intact.
OPTION 2:
Most others make adjustments to their benefits - usually shortening the Benefit Period from lifetime to 6 years or 5 years to 3 years for example, or reducing the daily or monthly Benefit Amount, or a combination of both. It is important to note that reducing your benefits like this can be done at any policy anniversary - a benefit reduction does NOT have to be tied to a LTC rate increase. You may be able to accept a premium increase today, but knowing you could lower your benefits in the future if you needed to reduce premiums at that time is also worth considering.
Some companies offer the ability to reduce the future rate (percentage) of benefit inflation increases. This is often called a "landing spot." For example if you have had a 5% automatic benefit increase rider, the company may agree to not raise your premiums if you accept only 3% benefit increases going forward. These inflation percentage change offers are usually only available for a limited period of time around the LTC rate increase implementation date.
OPTION 3:
Very few people actually take the "Reduced Paid-Up" benefits and walk away. This option which is made available whenever there is a premium increase allows you to stop paying premiums but not lose all of your coverage; you keep a maximum benefit pool of money equal to your total premiums paid-in over the years. Note that this option is only available during a new rate increase implementation window, you cannot ask for it after you have accepted a premium increase and/or just reduced your benefit parameters.
Other Options - Deep Dive
There are always more benefit change/adjustment options available than just the three or four shown by the company as part of its LTC rate increase announcement letter and options package. Work with your agent who sold you the policy or another LTC specialist who can help you consider all of your options.
A few companies are starting to offer a cash-back payment to people who want to walk away from paying any more premiums. Sometimes this is offered instead of the "Reduced Paid Up" option or along with it.
There have been a few successful class action lawsuits against insurance companies related to in-force LTC rate increases. If you policy is covered by the class action, you may have an opportunity for other options as part of a lawsuit settlement option. Again, work with your agent or financial advisor or a LTC specialist to understand all your options and to consider what remains best for your continued long-term care planning needs.
A few companies are starting to offer a cash-back payment to people who want to walk away from paying any more premiums. Sometimes this is offered instead of the "Reduced Paid Up" option or along with it.
There have been a few successful class action lawsuits against insurance companies related to in-force LTC rate increases. If you policy is covered by the class action, you may have an opportunity for other options as part of a lawsuit settlement option. Again, work with your agent or financial advisor or a LTC specialist to understand all your options and to consider what remains best for your continued long-term care planning needs.
Author: Bill Comfort, CSA, CLTC, LTCCP
UPDATED: 2/7/2024
UPDATED: 2/7/2024
