When to Change Long-Term Care Insurance Policies

This could be an auspicious time for owners of long-term care insurance policies to consider upgrading or exchanging. While many people have not purchased the policies those who purchased them in the past should take a look at what is available.

The biggest gripe of LTC policy owners is premium increases. There are a few insurers who have written a significant amount of these policies over the years and know the market well. They price policies properly when sold, and so they do not have to impose premium increases year after year.

Inexperienced insurers or those chasing market share charge low premiums at the outset. Over the years they need to increase premiums, often by substantial amounts. Florida reports that each year about half of the insurers with policies in force in the state ask for premium increases. If premium increases are a problem, a current LTC policy owner should shop for a policy among the experienced insurers with histories of low or no premium increases.

Another reason to upgrade is that a newer policy is less likely to have the premium increase problem because state laws have changed. A model law adopted by many states effectively punishes insurers for premium increases.

The new policy with the more stable premium won’t be the lowest premium policy and might be higher than the premium on the current policy. Yet, over the long term a higher initial premium with little or no increases will cost less than today’s lowest cost policy.

Another reason the new premium might be higher than the old premium is that the insured is older than when the older policy was purchased. An older insured means higher premiums.

A new policy also is likely to have benefits that are not covered on an older policy, such as more types of care or a broader range of providers.

Consumers in their 50s and 60s are prime candidates to consider upgrading their long-term care policies. Older consumers likely will find that premiums on new policies are prohibitive.

A new policy might not be an option if health has deteriorated and made the owner uninsurable or insurable only at high cost. Those with reasonable health and older policies should work with an experienced LTC insurance specialist to learn what is available today.

A more important consideration than the premium in a new policy is the financial health of the insurer. There is no reason to buy a policy from any but the large top-rated insurers who have been in this market for some time.

While shopping, carefully consider the coverage options. We have covered the provisions of LTC policies in past visits and in my book The New Rules of Retirement. The past articles are on the Archive on the web site. Premiums can be kept low by carefully selecting policy terms to provide solid coverage without gold-plated coverage that makes premiums soar.

What about those with older policies who cannot replace them because of health or other reasons?

There still are actions they can take. Most policies allow coverage to be adjusted over time. Policy owners can talk with their insurers about their current levels of coverage to see if it can be reduced to bring down the premiums. Terms that are most likely to result in savings are the level of daily benefits, the elimination or waiting period before coverage begins, the maximum length of coverage, and the inflation protection formula. All the terms that new policy buyers consider also should be considered by existing policy owners who are looking to reduce premiums.

Some LTC owners drop coverage because the premiums are too steep. They should remember that the nonforfeiture clause in most policies means they do not lose all the benefit of their premiums already paid. If they need covered care in the future, the insurer will pay daily benefits equal to the amount of the premiums paid before the policy lapsed.