John Hancock Long-Term Care Policy Rates May Rise

If it gets approval, the insurer will increase premiums on some existing policies for the first time ever.

I heard a rumor that John Hancock will be increasing rates for some of its long-term care insurance policies. Is this true?

It is true. John Hancock is filing for rate increases on long-term care policies that were sold in the 1990s and some New York Partnership policies that were issued since then.

The move will affect about 275,000 people, which is about a quarter of the company's policyholders. Those who have policies that were originally issued by John Hancock should expect a 13% increase in premiums. Those who hold policies that John Hancock acquired from Fortis in 2000 will see an 18% increase. Of those affected, most will pay, on average, $21 more in monthly premiums ($262 per year). The rate increase only affects individual policies, not group policies.

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It's still a few months before the price will rise for any policyholders. States must first approve the rate increases, then John Hancock must give policyholders 60-days notice before raising their rates. After that, the rate hikes will take effect when the policies come up for their annual renewal.

Premiums are increasing because the company expected more people to drop their policies before collecting benefits. Instead, consumers held on tightly to their policies and didn't want to drop coverage after paying premiums for years, which was a smart move. But it left some of the older long-term care insurance policies under-priced.

Genworth, another long-term care insurance companies, made a similar announcement a few months ago -- raising rates by 8% to 12% for about 440,000 existing policyholders. Both announcements are significant because Genworth and John Hancock are two of the largest long-term care insurance companies and hadn't raised rates on existing policies (except for a few Fortis policies John Hancock acquired).

Even after the rate increases, these older policies tend to be less expensive than similar policies sold today. Most long-term care insurance companies raised rates for new buyers over the past few years -- especially on policies with lifetime benefits -- after states started to pass laws making it tougher for insurers to increase premiums after people buy their policies. Because of those new laws, the rates on policies purchased from now on are less likely to increase.

If your rate rises, it's still usually best to keep your current policy. Not only do new policies tend to be more expensive, but also you're now older and more likely to have health conditions that make it tougher to qualify for an affordable policy. If you do have trouble paying the premium, consider cutting back on the benefit period (most people only need care for about three years) or extending the waiting period before benefits kick in. Also see how the daily benefit you have compares with current nursing home and home-care costs in your area -- you might be able to lower your benefit amount. If you're in your seventies, you may no longer need compound inflation protection, which can also lower the cost.

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.