If you’re the owner of a long-term care insurance policy, you’ve probably learned that premiums can (unfortunately) go up over time. But when you’re confronted with a big increase, do you know what your options are?
Here’s a real life example we’re facing in our office. We’ve been helping a client who just found out her long-term care premiums are slated for multiple increases starting next month.
She wants to keep the policy, and depends on those insurance benefits to pay for her care if she ever needs help.
So here’s some factors to keep in mind if you’re confronted by a premium increase:
To pay or not to pay. The insurance company should tell you in writing what the new premiums will be, and what options you have to reduce or modify coverage if you choose not to pay up.
Getting help. Ask your agent or financial advisor to help explain your options. (Our client is no longer in contact with the agent who sold her the policy years ago, so we’ve stepped in to help her make sense of the choices and coordinate the overall long-term care strategy).
Paying up. If you can afford to pay the full increase, and want to retain maximum coverage, paying the higher premiums may be a good choice.
Or not? On the other hand, you might decide that the ballooning premiums are too pricey for your budget, or maybe you don’t need all that coverage any more. You can usually ask the insurance company to modify and reduce coverage in return for lower premiums.
Read our related article: Help! My Long Term Care Premiums Went Up 44%!
Work it out. In our client’s case, we got on the phone with her and the insurance company to explore options. One possible choice was rolling back previous increases to her daily benefit, which has risen over time with inflation (not a good option, we decided, since the client wants to keep benefits at current levels). Another option was lengthening the elimination period (the waiting period before benefits kick in). Not a bad idea, but not one that resulted in a meaningful reduction in costs. Yet a third option was potentially trading in the 5% compound inflation benefit (the Rolls Royce of inflation protection) for a more moderate benefit of around 2 to 3% per year.
See our related article Ask The Expert: Everything You Always Wanted To Know About Long-Term Care Insurance
So what’s the verdict? Nothing finalized yet; we’re still waiting for the insurance company to confirm their offer in writing before signing off.
The takeaway? The moral of the story is that you do have choices when confronted with a premium increase. There are multiple options available; make sure to talk to the insurance company to find out all the possible choices, and then decide what best meets your budget and your needs.
While it’s certainly unwelcome, “a premium increase alone is no reason to dump your long term care policy,” commented Randy Bruns, CFP® RICP®, President of the Financial Planning Association of Illinois. Nor does it mean you have a “bad” policy. Long-term care coverage is an important protection, so keep yours up-to-date and focused on your needs.
Want to learn more? Check out the video below: “How The Wall Street Journal Got it Wrong with Long Term Care Insurance”