My Premium Has Increased. Help!
Help! My LTC Insurance Premium Is Going Up
Inflation, you can’t live with it, and economists say we can’t live without it. But when you get a letter telling you that the cost of something you are paying for is going up, it’s not a pleasant experience.
There are several things you can do to mitigate a price increase on your LTC insurance policy, but lets first look at why it is going up. The early policies, from the 80’s and 90’s were offered while this industry was in its infancy. The insurance companies made several mistakes. One in your favor is that the companies have learned that couples (who love each other) will take care of each other longer before calling in the hired help. Thus couples discounts are larger now than they used to be.
One assumption that turned out to be incorrect was that over time, the insurance companies thought some percentage of people would simply drop their coverage. I for one, know that with each additional ache and pain that seems to come with age makes me want to keep my insurance as I may someday be using it. Most people felt this way resulting in the majority of insurreds keeping their coverage for life, not dropping it.
Medical research has uncovered problems that have only become evident in the past few years. Diabetics have a 65% greater chance of developing Alzheimer’s than non-diabetics. Things that used to kill us, now only “wing” us, resulting in longer lives with more chronic conditions. Lastly, the insurance industry, which invests premium dollars conservatively, is only earning 3.2% on their investments, while promising 5% compound growth on the LTC insurance benefits, and are thus falling behind. Nobody anticipated that interest rates would drop this low.
The states approve price increases, when justified after evaluation, as they want the insurance company to be able to pay claims in the future. The first thing for you to consider when a price increase letter arrives is to re-evaluate to be sure you have sufficient, but not too much coverage. Perhaps your investments have done well, an inheritance has arrived, or income is up significantly, meaning less coverage is required to make up the shortfall.
A price increase letter usually comes with an offer or two to mitigate the price increase. Often these options are the ones your insurance company hopes you will choose. Let’s look at what might be in your best interest.
It is better to have sufficient coverage for a shorter time, than insufficient coverage for a longer time. If the policy’s daily or monthly benefit is reduced, will the shortfall require you to use up savings and possibly end up on Medicaid? Consider reducing the length of benefit if need be, so that you have sufficient cash flow to pay for care for fewer years, instead of reducing the benefit amount so that you must immediately start using up savings.
The deductible, called the elimination period, might be lengthened to reduce costs. Just be sure you can easily pay out of pocket for the length of time before the insurance starts paying.
Often, the insurance company will suggest reducing the inflation percentage on the daily or monthly benefit. Unless care is imminent, this is a poor choice. Inflation on the costs of LTC services have been a bit less recently, due to the stagnant economy. The people who will take those difficult, minimum wage caregiving jobs are now looking for better paying, easier work. This is going to cause the costs of care to increase more in the future. Remember that you may not be using this coverage for 20-30-40 years or more.
More information is available at www.TheLongTermCareGuy.com
My Premium Is Being Raised, Why and What Can I Do?
A recent Wall Street Journal article details some of the price increases that have occurred on people’s Long Term Care insurance (LTCi) policies. Price increases happen on many things over the years, but let me explain what is happening in this industry.
My LTCi policy has been in force for 12 years now. I have paid in about $18,000 in premiums and if I need 4 years of care starting now, I will collect over $388,000. If I need that same amount of care in 20 years from now I will collect over 1 million dollars (not counting the 5% increase in what they pay me each year while on claim). That’s a pretty good deal. It’s not expensive, sure it is a large premium, but it is actually cheap compared to the cost of care or what it will save me.
This is still a young industry, but one that has evolved quickly. Many of the early policies sold were sold to people they should not have offered them to, and at prices that were too low. They learned. Then the industry realized their assumption that like life insurance, some people would drop their policies over time and never have to pay claims on them was wrong. DUH! The older, and stiffer, and fatter I get, the more I realize I am happy I have this policy.
One of the companies mentioned prominently in the article was in the past my “go to” company for people with diabetes. If you have diabetes you are 65% more likely to develop Alzheimer’s disease. Yes, I sold this company’s policies, but only to diabetics who could not get coverage anywhere else. (They won’t touch a diabetic now anymore – they learned) Get your coverage while young and healthy enough to be able to get it!
This is just one of the reasons to investigate LTCi with an expert in this area, not someone dabbling in it. You wouldn’t go to a dentist for a root canal if he/she mentioned it was the first one and they always wanted to give it a try.
You may have noticed that interest rates are very low today. The insurance industry as a whole is earning only 3.2% on their assets. Yet LTCi policies automatically increase your benefits by 5% compound every year. Insurance companies are going backwards right now. Thankfully they have billions and trillions in reserve, but they are hoping, just like you, that interest rates will rise a bit and take the pressure off. And they are still paying claims every day.
Perhaps one might just let the government pay for their LTC. Good luck with that. How much do they have in reserve? How much is in the Social Security bank account (average benefit about $1100/month)? Is Medicare any better? A nursing home costs $8000 a month or more in Wisconsin, why would you depend on Medicaid, which requires impoverishment, when for just a fraction of your nest egg you can have insurance to let you go where you want when care is needed?
The insurance industry does not have a perfectly clear crystal ball, nobody does. But, it is the best thing we have. It is better than impoverishment and dependence on government welfare by a long shot. If your premium has gone up, call me and let’s see what we can do to mitigate the increase, there are numerous options. I can help you choose which one is best for you.
In the meantime I will continue to pay my premium for my LTCi. I will continue to pay for my car and home insurance even as they go up as well. I am glad I have to protection and choices for where and how I will be cared for. Romeo Raabe, TheLongTermCareGuy.com (920) 884-3030 or (800)-219-9203
HELP! The premium just increased for my LTC insurance
Have you recently received a letter announcing a price increase on your LTC insurance? It probably offered to mitigate that price increase if you would just lower the daily (or monthly) amount the policy pays when you need care. Or perhaps it offered another option of lowering the rate at which your policy keeps up with the ever increasing cost of care.
Before you choose one option over another it might be wise to consider how much coverage you need, and then compare that to where your policy currently stands in how much it will pay. Most people do not need as much coverage as they might initially think. When somebody needs LTC services, their lifestyle changes. Vacations that were fun might now be burdensome. Toys such as the boat, camping trailer, motorcycle might no longer be used and thus no longer fed, gassed up, or insured.
Taking this into consideration you might consider how much of your income can go toward the cost of care. If you are not using your nest egg for current income, and wish to preserve the principal, you might add in the available interest you can pull from it.
This will give you an idea of how much you can contribute towards the cost of care with the shortfall coming from the insurance policy. Do you want to be able to cover the cost of a nursing home, or just the cost of an assisted living type of facility at half the cost? Home care can be any price, but if a lot of it is needed perhaps a facility might be less expensive and includes more social interaction as well.
Just because the LTC insurance company gives you 2 choices, does not mean you can’t chose something different. It might be far better to have enough cash-flow to pay for 4 years of care, than insuffiicient cash-flow for 8 years. You can call and ask the company to compute what your premium might be with a shorter benefit period. You might also consider having just enough insurance benefit so that with your available income you can cover home care or assisted living, and plan on Medicaid for help if a nursing home is needed.
One of the reasons the price increases have happened in the past few years is that the insurance industry, as a whole, is earning about 3.2% interest on their assets, while guaranteeing you a 5% compound increase every year on your daily or monthly benefit. If interest rates increase to what we consider normal, this pressure on rates will likely diminish.
It is also possible to look at replacement coveraqge, but considering your older age, and what your policy benefit has grown to with the inflation option, a new policy would likely much more than your current coverage, even with the price increase. A visit to a local expert on LTC insurance for guidance might be the best place to start.