LTCI: Does Automatic Inflation Protection Guarantee Against Rate Hikes?

In A Sneaky Secret About Long-Term Care Insurance Premiums, I discuss the possibility of LTCI premium increases due to selecting an inflation protection option that is not automatic at the inception of the policy. In this article, I will explain how policyholders could face future rate increases due to factors that are beyond their control.

Protecting Against Premium Increases

When a policy design includes automatic inflation protection, the premiums are designed to stay level for life. This is because all future benefit increases are already built into the premium. The benefits in this type of policy design will rise each year to offset the cost of inflation, but the premiums will remain the same.

However, all insurance carriers are required to inform applicants for new LTCI policies that they reserve the right to be able to raise LTCI premiums in the future if it becomes necessary. This is because the field of Long-Term care has changed constantly over the past thirty years, presenting a significant challenge for insurers to be able to accurately predict future costs. If a rate increase for a particular carrier is approved by the state insurance commissioner, all policies of that type by that particular insurer will experience a rate increase—including those who have automatic inflation protection built into the policy design. This is why choosing a stable insurer is crucial: consumers who choose from the short list of carriers that have already demonstrated outstanding rate and financial stability in the last twenty to thirty years can greatly reduce their odds of experiencing a major rate hike in the future.

A Volatile Industry

There are many other forms of commonly purchased insurance: life, homeowners, and even auto insurance. All of these types of insurance have reliable and stable data that goes back many years; therefore, most insurance carriers are able to accurately predict future costs fairly easily. The ever-changing nature of Long-Term care, however, presents unique challenges for most insurers, even the reputable ones. Several very good companies have entered this industry but have had to cease their LTCI sales or even exit the field altogether. This often means that their policyholders will face rate increases to offset the unforeseen costs that were not built into their premium at the inception of the policy. Sometimes these increases may be fairly minor. But in some cases, policyholders may face rate increases of 50–70% or even more. These steep increases can be a serious problem for policyholders who are on a fixed income. So how can a consumer minimize the chances of facing these kinds of premium increases in the future?

Choosing a Stable Insurance Company

Choose from the major carriers who have a long history in the LTCI field and have demonstrated solid rate and financial stability. This shows that these carriers have weathered the challenges and problems that are unique to Long-Term care insurance. It also shows that they employ high-quality business practices and underwriting procedures that will most likely make them reliable for many years to come.

Since Long-Term care insurance has only been available for the last thirty years or so, there are not many companies that can boast of having a stable premium record for the last twenty years or more. But choosing from the short list of highly respected LTCI carriers who have such excellent track records can help protect against significant premium increases in the future.

Until next time…Duane

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

Posted in Financing Long Term Care, Which Policy Should You Buy