Money in the Middle

Sandwich Generation Talking About Money Up, Down and Across Generations

When Your Long-term Care Insurance Rates Rise

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Over the past several months, many long-term care insurance policy holders have received unwanted news from their LTC insurance company:  your rate is going up.

There are a number of reasons prices on policies issued years ago are going up now.  The current low-interest rate environment; more people are holding onto their policies rather than lapsing (stop paying); and people are living longer so more are expected to use their benefits than originally projected. 

But raising rates?  Can they do that?  You probably don’t remember it, but your policy includes language that the rate can be increased in the future.  And many companies have held off on increases.  But to maintain a financially stable program, the rates have to support potential claims.  Those insurance through the Federal government employees long-term care insurance program found that out last year when some rates increased as much as 25%.

It’s also important to recognize that the increase does not reflect anything about you as an individual.  When companies make these changes they do so for an entire class of policy owners, i.e. people who bought a certain policy during a certain period of time.  So you aren’t being singled out. 

You’ll receive a letter from the insurance company telling you when the rate is going to increase and the options you have if you don’t’ want to pay more.  

So, what are your options?  

Cancelling should be the last resort.  Unless you have a provision in your contract that lets you stop the policy and receive the benefits you’ve accrued to date, you will lose all the money you have paid in for the insurance.  Work with the insurer to find a benefit level that you can afford. 

Buying a new policy at a lower cost usually isn’t an option.  LTC insurance is priced by the age at the time you apply – the older you are, the more it costs.  So switching probably won’t save you money if you’ve had your policy more than a few years. 

If you are happy with the policy and you can afford the rate increase that solves the problem. 

But, if you can’t afford the increase, you can change the benefits.  The letter will outline what you can change and the impact it will have on your price. 

A good place to start can be the additional “riders” you purchased.  See if they are still as important to you as they were when you bought the policy.  Be careful about cutting inflation protection if you have it (the percentage at which the daily benefit increases each year — for example, 5% compound growth.  That’s what keeps your pool of money growing to keep pace with the costs of care when you need it in the future. 

Then take a look at the core benefits: daily benefit, policy years, and elimination period (deductible).  Your agent or the company can help you work through the tradeoffs.  Ask about the average costs of care in your area.  That can help you determine how far your coverage will go.

For those in the sandwich generation, if your parent is finding it difficult to pay the higher amount you might want to consider chipping in and paying the difference.  Continuing the level of coverage may be a huge financial relief in the future for all of you.

Don’t wait until the last minute to make the decision.  Give yourself time to review and consider the financial tradeoffs.

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Written by Laura Rossman

August 13, 2010 at 3:28 pm

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