August 20, 2020
For years I have been a big believer in the value of long-term care insurance. Many of you will live into your 90s. At some point it is reasonable to think you may need help. Maybe it’s help in your home—someone to assist you with cooking, bathing, etc. Or perhaps you may find it best to move into an assisted living or nursing home at some point. The cost of that care is very expensive, and it keeps rising at a rate that is higher than the overall inflation rate.
Long term care insurance can help you—and your family—pay those bills. We have home insurance to protect us from the possibility of damage to our homes. We have auto insurance to help us in the event of an accident or injury. It makes a lot of sense to have insurance that can provide ample support if you become too ill to care for yourself.
That said, many of the smart people who bought a LTCi policy years ago are being hit with stiff premium increases that can be 40 percent, 50 percent or more. This is happening because many insurance companies mispriced policies that were sold in the first years when LTCi was offered. The assumptions the insurers made were too optimistic. With so little experience, they couldn’t correctly anticipate the cost of care, how many people would qualify for payouts, and at the same time the insurers found their own investment returns impacted by the low interest rates we have all had to deal with since the financial crisis.
Given that their costs have been far higher than anticipated, some insurers have successfully petitioned state insurance commissioners to be allowed to increase the premiums on existing policies.
I understand the shock, and the financial burden that may inflict, but I still believe the policy is worth keeping. The worst move is to drop a policy after 10 or 15 years or premium payments.
I encourage you to try and think through your options. Let’s say your policy had an annual premium of $1,500 a year, and now it is $3,000 a year. A big jump, to be sure. A huge jump. But keep in mind that the national median annual cost of an in-home aide in 2019 was around $52,000. That’s just for five days a week!
So that’s why I say a policy with a premium hike is still likely very valuable. I encourage you to keep paying the premium. A premium that rises from $1,500 to $3,000 a year, works out to an extra $125 a month you need to come up with. I bet if you put your mind to it you can find a way to free up another $31 or so a week to put toward this expense.
That said, if you feel the increase is a budget buster, please gather your adult children and share your situation. I know this may not be easy. But trust me, your kids will be thrilled to help cover the premium increase. Look at this from their perspective: they can help you keep this valuable protection today, or they can face a future where you drop the coverage and then they may eventually end up needing to step in and pay for the care you may need later on, out of their own pocket. That would likely cost a lot more than helping you with today’s premium. And if they can’t afford to help you with money, then they will likely have to help you with their time, which can be infinitely more valuable to them.
Another alternative is to reduce the benefit levels in your existing plan, as a way of reducing the premium. Please be careful here. It is so tempting to cut the inflation-rider benefit that increases the value of your policy to keep pace with rising prices. Given that you may not need to tap the policy for 15, 20 or more years, inflation is something you need to plan for.
Advice for New LTCi Shoppers: I still highly recommend that once you turn 50 you research whether a LTCi policy makes sense. The fact is, because of all the pricing problems the industry has had, new policies have more realistic benefits and premiums from Day One. That doesn’t guarantee that you won’t be hit with a premium increase somewhere down the line, but it likely reduces the odds of insurers needing to ask for a large increase, or multiple increases. (To be clear: insurers must get approval from state insurance departments to raise premiums, and any increase must be applied to all policy holders of a given product.) Nonetheless, to play it safe, I recommend buying a policy where you could absorb a doubling in the premium cost sometime in the future. I am not saying that will happen. But we always want to hope for the best and plan for the worst. Purchasing an LTCi policy that you can comfortably afford to keep even if the premium rises is smart planning.
If you need help I personally would contact LTC insurance consumer advocate and educator Phyllis Shelton at GotLTCi.com for advice. There are many ways to pay for long-term care and Phyllis can discuss all of them with you. She is a tremendous resource and just to anticipate a question: I have no business arrangement with Phyllis and do not receive a penny from any policy you might purchase. However when we went to buy an LTC insurance policy we sure did it through her. Just saying!