Long Term Care Premiums Are Not Fixed

Long term care policies have been in the news quite a bit lately because of the steep rate increases that have impacted a lot of policy-holders.   John Hancock Financial has asked regulators to approve rate increases that average 40% and would apply to 850,000 of their 1.1 million policies (there are about 8 million Americans currently covered by long term care policies).  In addition, American International Group Inc., MetLife Inc., and Lincoln National Corp. have either applied for or been approved for rate increases that range from 10% to 40% in various states.

Although state regulators have to approve rate increases before they can be implemented, the regulators have to consider the insurer’s financial solvency in addition to the needs of the policy-holders.  If denying the rate increase will mean that the insurance company can no longer remain in business, that would be more harmful to the insureds than the rate increase.  So we cannot simply say that regulators shouldn’t allow such large premium increases.

Since long term care policies are mostly owned by older Americans, many of the policy-holders are on somewhat fixed incomes.  The recession has taken a toll on everyone over the last few years, but it’s particularly hard to recover if you’re living off of your investments.  For people who were already paying over $2000/year in premiums, an additional 40% can make a policy simply unaffordable.

Policy holders who find themselves unable to afford their new premiums can ask the carrier to reduce the benefits in order to lower the premiums, although some people will likely opt to cancel their policies instead.  Unless an insured has a new strategy in place that will allow them to cope with the possible expenses of future long term care, this is probably not the best option, simply because the premiums that have already been paid will have been wasted if the policy is cancelled.  Of course, insureds are always free to shop around for new coverage, but many will find that it’s difficult to find a better deal, especially if they are significantly older than they were when they got their current policy, or if their health has deteriorated at all.

One of the most important lessons from the wave of recent premium hikes on long term care policies is to keep in mind that the premiums are not fixed.  Although they don’t increase as frequently as health insurance premiums, they are not locked in the way term life insurance premiums are.  Unfortunately, some agents might not have communicated this clearly to their clients.  Other insureds might have had several years without a rate increase and started to think that the policies simply didn’t have rate increases after all.  It’s important that agents who help clients select long term care coverage are clearly communicating the fact that the premiums can – and likely will – increase as the years go by.  If the insured is stretching financially to cover the initial premiums, the long term care policy might not be the best fit.

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