What to Do When Long-Term-Care Insurance Premiums Rise

I received a letter from John Hancock insurance company letting me know that the annual premium on my long-term-care policy will increase by 68.14% on March 27. My wife received a similar letter advising her that her long-term-care premium will increase by 76.99%. What should we do?

This is the John Hancock rate hike that we first wrote about two years ago -- it took that long for regulators in some states to approve the premium increase. Plus, the increase doesn’t take effect until your policy is up for renewal, so it’s just starting to kick in for many people this year. John Hancock raised rates on some policies by as much as 90%, but a more typical increase was 40%. Several other large long-term-care insurers -- including Genworth and MetLife -- have also raised their rates substantially over the past few years. Insurers say they needed to boost rates because of higher-than-expected claims and low interest rates, which have reduced returns on their investments.

When your insurer notifies you of an upcoming rate hike, you have several choices. John Hancock gave most people the option of reducing their inflation protection -- from 5% compound inflation protection down to 3.2% or 2.7% -- and keeping their premiums the same. That still gives you a good deal of coverage, but it’s important to do the math. Calculate what the total payment would be when you’re most likely to need long-term care -- perhaps at age 80 -- under both assumptions. "The 5% compound inflation doubles the benefit every 15 years, and the 3% doubles it every 25 years," says John Ryan, of Ryan Insurance Strategy Consultants, in Greenwood Village, Colo. "That’s a huge difference." Then see how much care currently costs in your area, how much it is expected to rise in the future, and how much of a gap you’d have to cover yourself under both types of inflation adjustment.

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Another option is to keep the inflation protection the same but reduce your daily benefit or the benefit period. The average claim is for about three years, so reducing your benefit period from five years or more down to three or four years can cut your premiums (especially if you have lifetime benefits) and still provide ample coverage in most situations. However, consider keeping the longer-term policy if you have a family history of long-lasting conditions, such as Alzheimer’s disease, which can last for ten years or more. (See Does Insurance Cover Alzheimer’s Care? for more information.) You may also be able to reduce your premiums by extending the waiting period, but keep in mind that the cost of care -- and the amount of money you’d have to pay out of your own pocket before benefits kick in -- will also increase with inflation.

If you carefully calculated how much coverage to get when you first bought the policy, it’s generally best to pay the higher premiums rather than cut back on coverage. Dropping the policy is usually the worst choice. Any new policy you buy is likely to cost a lot more than your current policy -- even after the rate increase. Premiums on new policies are about 30% to 50% higher than they were five years ago, says Jesse Slome, executive director of the American Association for Care Insurance. You’ll also pay more because you’re older, even if you’re in perfect health.

For more information about long-term-care insurance, see Navigate a Course for Long-Term Care. Also see A New Strategy for Paying for Long-Term Care for advice about calculating your long-term-care insurance needs.