If you made the decision to buy a long-term care insurance policy about a decade ago, you may be getting a big rate increase in premium this year.
Prudential insurance company anticipates increases in premiums between 18 and 25% for those policies issued between 1999 and 2003. MetLife anticipates increases of 18% on those policies with the series LTC 97 and VIP1.
Perhaps the increase that will affect the most people is from John Hancock which will impact approximately 140,000 federal employees with long-term care contracts. The company announced their premiums for this group will be going up by as much as 25%.
There is a lag time between when an insurance company announces a premium increase and when the effective date of that increase starts as a result of the regulatory approvals necessary by each state. Many companies have recently made the announcement so expect the increases in the next year.
The size of the upcoming increases will vary according to the claims experience for the group of policies, the investment return of the company, as well as the type of coverage provided by the plan. Those policies issued to groups may be hard hit since companies were very aggressive in pricing a few years back.
Those policies that have richer benefits such as lifetime benefits could face higher increases since these policyholders are less likely to drop their coverage. Policyholders perceive them as having greater protection and wouldn’t want to lose the coverage. Therefore even with rate increases they tend to hold on to the policy.
At the time the policies are sold, agents often told clients that that rate is stable and not to expect a rate increases like that for standard health insurance. Evidently this is not the case when even companies such as Genworth have instituted rate hikes.
The question is what do you do if you receive a premium increase. The answer will primarily be determined by your financial situation. If you can afford the increase in premium, that might be your best option.
If the increase is more than you can handle, most companies allow you the opportunity to either decrease the amount per day of coverage or the length of the term of coverage and in some cases to change the deductible period.
There are however, some individuals who should consider dropping the coverage altogether. These are the individuals who were sold policies when they may not have needed them in the first place. One guideline is that you should not spend more than 7% of your annual income in long-term care premiums. A new increase in policy cost may put you over this recommended limit.
One option that is not likely is changing your coverage to a new policy or another company. Premiums are based on your age and health. If you took a policy 10 years ago, a new policy would be much more costly than one taken at a younger age. This is the reason why keeping your current coverage might be the best option.
One of the best types of long-term care policies is referred to as the California Partnership Policy. Only a handful of companies offer this type and it provides additional safeguards that non-partnership policies do not have.
You should talk to someone knowledgeable about your financial situation as well as your policy to decide what it best for you. The one downside to talking to the agent who sold you the plan is that he or she continues to get paid when you keep the policy. Talking to a financial planner who is not compensated by the insurance company may give you more objective advice. Unfortunately, some planners are not well versed in this area. HICAP is another option but their counselors vary in quality as well.
Should you get a rate increase, talk to your family, review your finances and get an objective second opinion.
Michael Chamberlain CFP®
CA Registered Investment Advisor
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This article is for informational purposes and should not be taken as legal, tax or investment advice.