Five years ago, most “top tier” long-term care policy providers boasted that they never had to increase premium rates on existing policyholders. Today, there are no “top tier” providers that can make that claim. In fact, some providers are no longer selling new policies. This issue is not necessarily isolated to just a few insurance companies, nor is it something that is dependent on an individual client’s circumstances. Rate increases are a reflection of several factors.
One of the biggest contributing factors driving the premium rate increases is that current policyholders are keeping their long term-care policy in greater numbers than originally thought by insurance company actuaries. The insurance company’s original assumptions were built where the provider expected a certain percentage of policy holders to “lapse” their policy. Secondly, the prolonged low interest rate environment hasn’t given the insurance companies their target rate of return to support their original premium assumptions. Therefore, insurance companies are exercising a provision in their contracts allowing them to increase premiums.
Generally, insurance companies are presenting policyholders with three options: increasing their premium to maintain current policy benefits; reducing benefits to maintain the existing premium or stop paying premium altogether, converting the existing policy to a “non-forfeiture provision,” which means that the insurance company will only payout the policy’s benefits until the total premiums have been returned.
If you find yourself presented with these choices, you should ensure that your long-term care policy is still relevant to your needs. You should evaluate how your current policy compares to the current cost of long-term care services. Also consider how much of the projected future long-term care cost you would be willing to self-insure.
Keep in mind, some older policies offer contract provisions that are no longer available, such as unlimited benefit payments or limited premium paying options. Depending on your situation, these contractual provisions may make these contracts very valuable and worth the rate increase to keep these options. Oftentimes, it doesn’t make economic sense to replace an older long-term care insurance policy with a newer one because premiums issued to newer policyholders have risen faster than any rate increases. Additionally, you would be entering the new policy at an older age.
These are some of the areas to consider when determining if you should pay the increased premium or consider addressing your future long-term care needs in another way.