If you have long-term care insurance, you’ve probably received a notice that your premium is increasing.
If you haven’t, just wait.
Many companies have raised or will be raising premiums, said Sharon Luker, a Plano, Texas, certified financial planner who specializes in long-term care insurance.
When Linda and Leonard Behr of Dallas each got a notice last year of a 20 percent premium increase in their individual policies, they bit the bullet and paid the higher cost.
“We’re OK with it, but I’m just hoping they’ll wait another 11 years to do the next one,” said Linda, 61. She and her 69-year-old husband bought their policies in 2002. “I wouldn’t want them to be doing this every year.”
Long-term care insurance helps pay for the care you need when you can no longer care for yourself. It generally covers home care, assisted living, adult day care, respite care, hospice care, nursing homes and Alzheimer’s facilities.
Long-term care can be expensive. In Texas, for example, the state Department of Insurance says that on average it costs about:
—$3,000 per month to live in an assisted living center.
—$6,000 per month for a private room in a nursing home.
—$40 a day for adult day care.
—$20 an hour for home health care.
A long-term care insurance policy typically will pay from $50 to $250 per day for nursing home care, the state agency says.
In recent years, companies that sell the policies have seen their profits hurt by low interest rates. That’s because the companies invest policyholders’ premiums and when rates are low, their investment returns are low.
There’s also a lot of uncertainty in underwriting a long-term care policy because the company is dealing with an event that may not happen for 20 or 30 years.
As a result, many companies that sold long-term insurance are no longer doing so. In the past five years, 14 companies have stopped selling new individual long-term care insurance policies, according to LIMRA, an insurance consulting firm. The insurers are honoring current policies, however.
“If you have a policy that was issued more than 10 years ago, you are more likely to face a rate hike,” said Lynn Lawrance, certified financial planner at Cetera Advisor Networks LLC in Dallas.
“When issuing earlier policies, companies didn’t really understand how to underwrite for the risks of long-term care,” she said. “Some companies used to deliberately underprice their policies to attract more customers, while other companies assumed more people would allow their policies to lapse than has actually happened, or they did not fully appreciate our increasing longevity.”
Insurance companies can’t raise your individual premium because of your advancing age or declining health. But each company has groupings of policies based on when they were issued, and they can apply to raise the entire group’s premiums.
Here’s what you need to know if your insurer tells you that you’ll have to pay more for your coverage:
EVALUATE YOUR POLICY: “You reassess the benefits that are in the policy and what’s really important to you today vs. 10 years ago,” or when you bought your policy, Luker said.
You may be able to co-insure some of the cost and thus reduce your coverage and avoid paying more, said Jesse Slome, executive director of the American Association for Long-Term Care Insurance, which represents insurance companies.
When an insurance company sends you a notice of a premium increase, it will typically give you options. Those choices typically are:
—Keep your current policy and pay the higher premium.
—Keep the current premium and reduce your policy’s daily benefit. For example, instead of paying $300 a day, the policy would pay $250 a day.
—Keep your current premium but reduce the length of time a policy will pay benefits, known as the benefit period.
—Keep your current premium but reduce the policy’s inflation protection. It may be years before you need long-term care, and costs could rise during that time. A policy’s inflation protection helps you keep up with the higher costs of services.
The gold standard is 5 percent compound inflation protection, meaning that your benefits increase in value by 5 percent a year.
The younger you are, the more important inflation protection is, and the cost of inflation protection is based on your age when you buy the policy.
Some long-term care policies have what’s called a “contingent nonforfeiture” clause that deals with rate increases, Luker said.
That clause allows you to either choose a reduced benefit amount to prevent premium increases or to convert your policy to a “paid-up” status.
That means that you’ve canceled your policy and the insurance company will set aside the amount you’ve paid and will only use it for your long-term care when you qualify for it.
The Behrs felt paying more for their policies was well worth the money.
“We have really good policies,” Linda said. “Ours is unlimited lifetime benefits, plus it’s 5 percent compounded inflation. We started out we were going to get a daily benefit of $150 each, but today what I would be getting if I had to use it tomorrow it would be $230.”
The Behrs’ policies have become a rarity in long-term care insurance, said Robbie Menter, their insurance agent.
“I don’t know of any company that is offering unlimited lifetime benefits,” he said.
SHOULD YOU SWITCH? The Behrs said another reason they decided to pay the higher premium is because it would cost them more to buy new coverage.
Like them, you may find that the grass isn’t necessarily greener on the other side.
“New policies do not offer comprehensive benefits, for example, unlimited lifetime benefits, and individuals might not qualify medically for a new policy,” Menter said.
If you decide to change insurance companies, keep paying premiums on your old policy until you know for sure that the new coverage has taken effect.
“You do not want to drop your existing coverage based on a quote,” said Tom Murphy, certified financial planner at Murphy & Sylvest in Dallas. “Only when you actually have a policy in hand and in force should you consider canceling an old policy.”
Don’t count on Medicare coming to your rescue.
Generally, it doesn’t pay for long-term care. Medicare pays for skilled nursing facilities or home health care only when your stay is medically necessary. And you must meet strict conditions for Medicare to pay for these types of care.
So before making a move that you may regret later, check with your insurance agent or other financial adviser. Costs for long-term care can wipe out your savings.
“Don’t immediately drop the policy,” Luker said. “Remember why you bought it and look at your options.”
Premiums for long-term care policies can vary depending on your age and the benefits you select. Here are estimated annual premiums a woman would pay for a policy with a $175 daily benefit, 3 percent compound interest, a 90-day waiting period and a five-year benefit period:
—A 40-year-old: $3,406
—A 60-year-old: $5,459
Source: MCT Information Services