What About Cost?

Premiums

Here we focus on traditional LTC policies . . . those that provide only long term care benefits and that are not associated with life or annuity products.  To make it a little personal, my wife and I have carried such coverage since 1999.

Premiums for traditional individual LTC policies are not guaranteed.  An insurer can, with the permission of the state insurance department, raise rates on a class of in-force policies.  A company cannot, however, single out an individual insured for a rate increase.  Only one company still offers a rate guarantee, but the guarantee is just for 3 years, and it is contingent on the insured not electing a deferred inflation option during that time.

Please do be sure to read our comments on the Home page of this website.

What If My Premiums Increase Down the Road?

Many of the major LTC insurers have, in recent years, raised the premiums charged to existing policyholders.  Qualified policies have a built in “contingent non-forfeiture” benefit that provides several options if cumulative increases in your original premium exceed that premium by a percentage based on your age when you bought your policy.  Those options, which we are not going to discuss here, are fixed and final.

But it is important to know that policyholders hit with an unacceptable rate increase (some have been as low as 8% and as high as 90%) may have other more flexible options to lessen and even negate the impact of such an increase.

For example, if your benefit has grown substantially over the years by virtue of an inflation rider (a 5% compound automatic annual benefit increase will have doubled your benefit in about 14 years), you could drop that rider from your policy and likely cut your premium in half.  Or, depending on your policy, you could reduce it to, for example, a 3% rider and significantly reduce your premium.

That might make sense if your financial obligations (mortgage, children’s education) have lessened while your retirement savings have grown. Your LTC benefit wouldn’t grow anymore, but consider whether your benefit may be adequate going forward, especially in the light of other assets that may be available to offset a shortfall should a long term care need develop.

Another option is to consider reducing your pool of LTC money—your benefit period—particularly if you are significantly further along in years.

If that’s  your only option, and taking it will enable you financially to keep, let’s say a 3 year benefit period instead of 6 years or longer, you should do so.  You’ll have 3 years of protection against some or all of the cost of your care and you’ll preserve the powerful ability to choose your caregiver because payment will be guaranteed to the extent of your policy’s benefits.

Please note that, if you and your partner have  Shared Care, you will each need to make identical changes in order to maintain that benefit.

If you haven’t already done so, you should consider visiting with your financial advisor and an elder law attorney to assess the most sensible way to deal with a substantial increase in your premium.  Reducing your benefits may have unintended consequences that they can foresee and help you avoid.

What About Discounts?

Discounts can range from 10 to 50% depending on the company and depending on your health, whether or not you are married or in a committed relationship, and whether or not you and your spouse or partner are applying for coverage in good faith.  An application by each of you when one is clearly not insurable will typically result in a reduction from what is called a “spousal” to a “marital” discount.

Discounts can add up so it is worthwhile to explore the cost of coverage for you together, even if one policy is structured differently than the other.  But remember, if you want Shared Care, you both need to be insurable and your policy benefits need to be the same.

Do I Still Have to Pay My Premium When I’m on Claim?

Virtually all policies on the market today provide for waiver of your next premium due once you are eligible for benefits.  Waiver means waiver, not a loan.  Should you recover, you’ll simply start paying your normal premium.

Some policies offer, some at an additional cost, provision for dual waiver of premium—while you’re on claim with your premium waived so also is your spouse or partner’s premium. 

In any event, do be certain that the policy you are considering provides for waiver of your premium.

Can I Buy a Paid-Up Policy?

Only one company still offers the option of paying a traditional LTC policy premium over a limited period of time, with no premiums due after that.  The period could be for 10 or 20 years. 

Note that other and increasingly popular product structures (so called "hybrid" and "asset-based" policies) do provide single and limited premium payment periods.  We will discuss those alternatives in the Are There Other Options? node of this website.

A “10 Pay” approach can more than double the premium compared to a lifetime payment period, but it buys you protection after those 10 years from future premium increases.

If you can afford the cost of a limited payment period, and you are comfortable with the benefit structure available from that insurer,  you should consider it.  The likelihood of future premium increases only grows as the “baby boomers” age and LTC claims multiply. 

A limited pay period may be particularly worthwhile for younger LTC applicants because your premiums will be lower by virtue of your age, and, should the premium increase before the limited payment period ends, you may better be able to afford the increase than if, for example, you are in your late 60’s or 70's when an increase occurs.

As in any major financial decision, you should competitively consider the costs of limited premium payment periods.  Be careful, because you likely won’t have the option of changing your mind several years into such an arrangement and getting credit toward a lifetime payment plan for the “excess” premium you paid during those first few years.

If you have a need for additional life insurance, you should also consider a hybrid or an asset-based policy  discussed in  Are There Other Options?