Managing Potential Premium Increases in Long-Term Care Insurance

Understanding Guaranteed Renewability in Traditional Long-Term Care Policies

Defining Guaranteed Renewability

In the realm of traditional long-term care insurance, “guaranteed renewability” is a pivotal term that policyholders must comprehend. This feature ensures that as long as premiums are paid, the insurer cannot cancel the policy, providing a sense of security to the policy owner. However, it’s essential to distinguish this from “non-cancelable” policies, a term not applicable to long-term care insurance. Unlike guaranteed renewable policies, non-cancelable policies would mean that premiums could never increase, a feature not found in long-term care insurance due to the unpredictable nature of future care costs.

It’s also worth noting the existence of “conditionally renewable” policies in other insurance domains, where renewal is subject to certain conditions. Fortunately, traditional long-term care policies offer the more favorable “guaranteed renewable” feature, ensuring continued coverage without the fear of cancellation.

Navigating Premium Increases in Long-Term Care Insurance

How Premiums Can Increase Over Time

While guaranteed renewability secures your policy against cancellation, it does not shield you from potential premium increases. Insurance companies may adjust premiums based on overall claims experience, inflation, and other factors affecting the cost of providing care. It’s crucial for policyholders to understand that these increases are not arbitrary but are subject to regulatory oversight.

Chart: Maximum Increase Percentage by Age

To illustrate the potential for premium increases, consider the following chart, which shows the maximum increase percentage determined by the age the policy was purchased:

Please understand, this is not a comprehensive list of potential increases. It is based on Florida’s LTC guide and I share this to highlight the potential increase policy owners may face and want to plan for. You can see the younger you are when you purchase a policy, the more the premium could increase with traditional long-term care insurance. The potential for premium increases diminishes with age. To know what the actual percentages are in your state, you can look it up on your state’s department of financial services website or we will share this information with your before you apply for coverage. 

Factors Influencing Long-Term Care Insurance Premium Increases

Causes of Premium Increases

When you purchase long-term care insurance, the amount of benefits are pre-set. More benefits equals more premium. There are a couple reasons insurance companies can increase your premium after years of owning coverage without a claim. These are:

• Higher Claims Experience: Insurance companies price long-term care premiums based on assumptions based on past claims experience. If the actual claims they experience are higher than those assumptions, they can ask state insurance commissions for permission to raise rates on existing business.
• Increased Longevity: Longer life expectancies can lead to both more claims and extended periods of care, increasing the insurer’s liability.
• Low Interest Rates: Insurers invest premiums to generate income. When interest rates are lower than what they assumed when the policy was issued, investment returns decrease and, potentially leading to a request to raise premiums on current business.

State Regulations and Maximum Allowable Increases

Insurance companies must request premium increases from state insurance regulators. Each state has its guidelines for acceptable increases, ensuring that policyholders are protected from excessive rate hikes. Typically, insurers must demonstrate a need for the increase based on actuarial data and receive approval from the state insurance department.

Policyholder Options in Case of Premium Increases

Reducing Benefits and Other Strategies

If premiums become burdensome, policyholders have options to manage the costs while maintaining some level of coverage. These include:

• Reducing the Daily Benefit Amount: Lowering the daily coverage amount can help reduce premiums.
• Increasing the Elimination Period: Opting for a longer waiting period before benefits kick in can also lower costs.
• Converting to a Paid-up Policy: Policies today have “non-forfeiture” benefits which allow a policyholders to convert their coverage to a paid-up policy with reduced benefits, eliminating future premium payments. This ensures they get benefits for the amount of premiums they paid.

The Role of Deductibility in Offsetting Premium Increases

As policyholders age, the IRS allows for a greater portion of long-term care insurance premiums to be deducted as a medical expense, helping to offset the impact of premium increases. For example, individuals aged 60-70 can deduct a higher percentage of their premiums compared to those aged 50-60. This tax advantage can provide some financial relief potetially  premiums rise.

In conclusion, while traditional long-term care policies offer the security of guaranteed renewability, it’s essential to understand the dynamics of premium increases and the options available to manage them. By being informed and proactive, policyholders can ensure that their coverage remains both affordable and adequate to meet their long-term care needs. You can learn more about premium deductibility by clicking here…150