Uncertain LTCI Cost

AALTCI 2010 Report Long-Term Care Insurance

Premium Amount           Under Age 61           Age 61-75         Age 76 And Older

Less than $500                  2.0%                        0.2%                 0.9%
$500 – $999                      26.1%                        9.5%                 9.8%
$1,000 – $1,499              15.4%                      11.3%               11.4%
$1,500 – $2,499              24.1%                      31.6%               19.5%
$2,500 – $3,499              11.8%                      20.7%               24.0%
$3,500 – $3,999                3.3%                        6.4%                 6.8%
$4000 and Over               6.0%                      14.9%               28.2%

Attribution:  American Association for Long-Term Care Insurance (www.aaltci.org)  analysis of data based on individual Partnership policy sales, June 2010

Notice: Remember: premiums are not guaranteed and can be raised by the insurer at any age. 

Stunning LTC Premiums

An Achilles heel of long-term care insurance is the fact that policy premiums are not guaranteed. The result is that consumers who purchase policies to pay for their future long-term care and determine what level of benefits they can afford to buy, often get hit with premium increases they can no longer afford.

This just occurred in New Jersey, whose insurance commission is permitting increases as high as 30%. (See article by clicking here.)

The protection consumers have is that premium increases must be approved by state insurance commissions and apply to all policyholders, not to single individuals. But if the policies were underpriced to begin with, the insurance commissioners will permit premium increases to make sure that the pool of funds coming in can meet the insurance company’s obligations.

Due to the fact that policies are expensive, premiums are not guaranteed, and most Americans are in denial about future disability, private insurance has not become a major player in paying for long-term care in the United States. As of 2005, long-term care insurance paid for only 7% of the more than $200 billion spent on long-term care. 

Insurance companies may argue that long-term care insurance policies are like homeowners, automobile or medical insurance, where rates change annually. But I suspect that most consumers think of it as more similar to life insurance, especially since premiums are based on age and health when the policy is first purchased. Except for variable life policies, life insurance premiums are guaranteed for the life of the policy.

The insurance industry would sell more policies if they would also guarantee premiums. But, of course, they may have a pricing issue. If they price the policies too high, no one will buy them. If they price them too low, they’ll lose money. 

Attribution to our friend Henry Magolis ElderLawAnswers Blog

Wall Street Journal article describes steps policyholders can take in response to premium hikes, including the following:

  • Drop the policy, though this can mean in effect losing the benefit of the premiums already paid.  Being older, it may be impossible to replace the policy, even at the new rates.
  • Modify the policy by lowering either the benefit amount or the length of coverage.
  • In some states, it’s possible to stop paying premiums and to have a permanent policy based on the premiums paid to date, allowing the policyholder to search for additional coverage elsewhere.
  • Seek assistance in paying the higher premiums from children or other family members who, after all, will benefit greatly by their parents being covered.