A Sneaky Secret About Long-Term Care Insurance Premiums

Affordability is a key ingredient in any successful long-term care plan. That is why the premium cost is often the most important factor to consumers who are considering the purchase of LTCI.

“Will My Premiums Ever Increase?”

One of the most common questions I hear is: “Will my premiums ever increase?” The answer is this: there are a couple of scenarios in which LTCI premiums could increase. I will try to explain one in this article and follow up with the second in a future article.

The first scenario involves a choice the policyholder makes regarding inflation protection. Most LTCI policies have automatic inflation protection built into the policy design from the beginning; in such cases the premium is designed to stay level for the life of the policyholder. The benefits increase each year, but the premium remains the same.

Inflation Protection: What You Need to Know

Some insurance carriers offer a different kind of inflation in which the policyholder starts out with no automatic inflation protection; instead, benefit increases would be offered every three years or so. These increases can usually be accepted or declined by the policyholder. This means that your premium would increase every three years for the rest of your life or until you start receiving policy benefits.

The problem with this inflation protection choice is that the policyholder is three years older when each offer of extra benefits is made. The cost of the added benefits is based on the later age, not on the age of the policyholder at the inception of the policy. This can result in a significant increase in premiums in later years. Some consumers simply drop these policies after a while, as they just can't afford to continue paying premiums that are so much higher than the cost of the original premium.

Long-term Effects of Premium Increases

Group policies often offer this kind of inflation protection to stay competitive with individual LTCI policies. Before finalizing their decision, it is very important for consumers to understand the long-term effects that these premium increases can have. Unfortunately, I see many policyholders who did not understand the ramifications of this kind of inflation protection when they purchased their policy. They sometimes find themselves locked into a policy that is constantly increasing in price and have few options for switching to a more affordable LTCI product due to their age and/or health circumstances.

It is true that automatic inflation protection increases that are built into the premium cost from the inception of the policy will initially be more expensive than a periodic increase offer. But in my opinion, in most circumstances, it is better to lock in your inflation protection costs at an early age, and know that your premiums will remain stable, than take the chance on an ever-increasing premium that may eventually be too much to afford.

Until next time…Duane

Read more about long-term care insurance (LTCI).

Posted in Financing Long Term Care, Long-term Care Insurance (LTCI), Why and When to Purchase