My Long-Term Care Premiums just increased 60% …what should I do?

Policyholders are getting notifications from Genworth and other Long-Term Care providers that their insurance premiums will be increasing by as much as 60%.  These are not new policies; these are policies that have been in force for more than a decade.  The question is often, “What am I to do?”

First, let’s understand what got us here.  When long term care policies hit the market 15 years ago, insurance companies expected these policies would have a lapse rate like life insurance policies.  Many of us have had life insurance policies that we no longer own because we changed jobs, the term expired or because we no longer needed the policy.

The insurance company thought Long Term Care policies would have the same lapse rates.  What they did not consider was Life Insurance only benefits someone else (you must die to receive a benefit).  Long term care policies benefit you and take care of you when you are not able to take care of yourself.

Because the insurance company was so off on the lapse rate, the policies are much more expensive than they ever imagined, and they are raising the premiums to recoup the higher cost.

What to do if your Premiums have increased by 60%.  The insurance company often gives you several options to reduce your benefit for a lesser increase

  1. Reduce the benefit period. The average stay in a nursing home is two years for men and three years for women.  If your policy covers, you for seven years or a lifetime you could look to lower the benefit period.
  2. Reduce daily benefit. The average cost of a nursing home is currently $200/day.  If your benefit is significantly higher, you could look to reduce your daily benefit
  3. Lower the inflation rate. Many policies were sold with 5% compound inflation rider, reducing this to 3% would lower your premium cost.
  4. Pay the higher premium. In all but a few situations, we are telling our clients to keep the policy as is and pay the higher premiums.
    1. Premiums are increasing because people are making claims on these policies.
    2. You cannot currently buy these policies
    3. They are still underpriced

Each of these decisions is very personal and unique to your facts.  Please contact your CPA or financial adviser before you make a decision.

Follow The Welch Group every Tuesday morning on WBRC Fox 6 for the Money Tuesday segment. 

Fox 6 Talking Points:

  • Reduce the benefit period
  • Reduce the daily benefit
  • Lower the inflation rate
  • Pay the higher premium

Michael Wagner CPA, CFP, is a Partner and Senior Advisor and also the Director of Business Development at The Welch Group, LLC, which specializes in providing Fee-Only investment management and financial advice to families throughout the United States. Michael is a graduate of The University of Alabama and holds the Certified Public Accountant certification and is a CERTIFIED FINANCIAL PLANNER™.  In addition, Michael is a frequent guest on local television stations as an expert on various financial planning matters.  Visit The Welch Group web site at www.welchgroup.com. Consult your financial advisor before acting on this advice.