Recently, a client brought me a letter he and his spouse received from his long-term care insurance provider informing him the premiums on the policies he purchased several years ago are going to increase by 50% if he wants to continue to keep the policy in force. Sure enough, the fine print in the policy contract stated they reserved the right to increase rates if they deemed necessary, and can get regulatory approval.
This was quite a shock, especially considering the company was a solid, highly rated company. I told my client this was not surprising to me. Premium increases are a recurring problem in the industry. Since 1990, over 50 insurance companies have increased their stand-alone long-term care policy numerous times.1 Many companies have quit offering policies all-together, and almost all have reduced or eliminated certain features such as lifetime payment of benefits, and indemnity, as opposed to reimbursement only payments.
What is a Long-Term Care Policy?
A long-term care policy is an insurance contract that pays benefits to the insured if that person is unable to perform certain normal daily living activities on their own, such as bathing, dressing, eating, toileting, or getting in and out of a bed or chair, or have a severe cognitive impairment. They must be under a plan of care approved by the insurance company. It is estimated that about 70% of people over age 65 will require some form of long-term care services.2Age, living alone, lifestyle, and family history, are a few of the factors that may increase the likelihood you will need long-term care in the future.
The need for long-term care can be an unexpected financial burden and can cause an emotional toll on you and your family. The average costs of long-term care services for a private room in a nursing home is now up to $229 a day, or $83,580 annually.3The additional cost to a family can be a devastating event to an otherwise well-planned investment portfolio.
Persons with a policy who are concerned about the possibility of rising premiums need to see a qualified financial consultant for a policy review. Your policy may have an option to take reduced benefits in exchange for a guaranteed level premium. A long-term care rider as part of a life insurance policy is another strong option. An LTC Rider can provide monthly benefits to help pay for long term care expenses while the life insurance policy can provide a death benefit whether you need long term care or not. If LTC benefits are not fully used, a federal tax-free death benefit is still paid when the insured dies. The Long Term Care Rider is an acceleration of the base policy’s death benefit. Benefits paid under the rider will reduce the policy’s death benefit and policy value. Consideration should be given to whether your life insurance needs are met if rider benefits are paid out in full.
Randy Shell serves as Senior Vice President of Pinnacle Trust. You can reach Randy by emailing him at firstname.lastname@example.org or calling 601-957-0323.
1California Department of Insurance.
2, 3National Clearinghouse for Long-Term Care Information, U S Department of Health and Human Services, June 2012 and September 2012.