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If you purchased long-term care insurance in the 1990s, chances are you will receive a premium notice increase. There are a number of reasons long-term care insurers are asking for raises. Plus, valuable new information can help you consider your options.

It is important to understand that insurance companies cannot arbitrarily increase premiums for long-term care policyholders. They must first seek and obtain state approval after a diligent process of proving financial need. Increases can only be requested for a category of policies, never for an individual here or there.

Profitability, or lack thereof, cannot be a reason for an insurer to request a rate increase. Rather, the insurer must demonstrate a material change in expectations, such as greater than expected use of policy coverage. For consumers, this is actually good news, demonstrating that people are indeed using the insurance coverage they purchased and paid for.

In general, there are two font components that are typically found in fonts that have already, or likely will have, seen the need for a rate increase. People purchasing long term care insurance in the 1990s and 2000s often included an inflation growth option. A majority of buyers chose the option where benefits grew at a rate of 5% compounded annually.

In the historically low interest rate environment that we have experienced in recent years, this formula was not viable. Similarly, policies offering unlimited or lifetime benefit payments generated higher utilization than originally expected.

Options available to policyholders

Contrary to common perception, when a rate increase is needed and approved, long-term care insurers provide consumers with options. An analysis just released by the American Association for Long-Term Care Insurance (AALTCI) reports on what consumers do when faced with a rate increase. It can provide valuable information about your choices.

According to the analysis, approximately 50-60% of policyholders facing a rate increase choose to pay the increased premium. This is likely because they understand that they have aged since purchasing the coverage and are therefore closer to the risk of eventually needing benefits.

Those who have spent time looking for new coverage have almost certainly found that equal benefits would cost 2 to 4 times more than the increased premium. If they are over 70 or have medical conditions, they have probably found that no coverage will be available to them.

Benefit adjustment may be a good option

According to the Association’s analysis of responses to increasing long-term care insurance rates, between 20 and 30 percent maintain their coverage by choosing one of the policy adjustment offers.

For most, this means dropping future policy benefit growth from the original 5% compounded to another option. It could be anywhere from zero to 3 percent.

Financial experts note that dealing with a rate increase is a good reason to do a comprehensive review of how long-term care insurance fits into your current situation. Has the value of your assets and your retirement income increased? What about the value of the house? For many, there is a realization that their long term care insurance benefits are sufficiently assessed for their perceived needs.

An option where you pay nothing more

The third option, according to the Association’s analysis, is the non-forfeiture option. Here, the policyholder chooses to stop paying premiums altogether. In exchange, the insurance company offers a certain level of available future benefits. Often this equals the amount of the premium already paid by the policyholder.

Between 10 and 20% of policyholders currently choose this option according to the AALTCI. For some, this is clearly a change of heart about the need or value of owning long-term care insurance coverage. For others, it may be the result of meaningful personal financial analysis.

For example, someone who has paid into their policy a sum of $60,000, for example, might consider this a sufficient amount of long-term care coverage due to the increase in the value of their assets and income. Since most long-term care is needed at home, with many requiring care for a year or less, a $60,000 benefit pool can be extended to supplement retirement assets and Social Security income.

Dealing with a rate increase is never a pleasant proposition. The recommended first step is to carefully read everything sent to you by the long term care insurance company. They will likely provide you with a customer service number that you can call to get your questions answered and further explanation of the options available.

Be sure to take note of the deadlines. Failure to respond in time could result in a potentially costly error. People looking for new policies and long-term care insurance costs can avoid the risk of future rate increases by selecting policies with rate guarantees. To find a specialist, contact the American Association for Long-Term Care Insurance. Call 818-597-3227 or visit the Association’s website.

Specialists can share ways to use limited compensation policy options or the plans available today that offer rate guarantees to avoid the risk of future increases. Another benefit that will help you sleep more soundly.


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