That sinking feeling when you open the envelope from your LTC insurance provider is justified, they are raising your premium. Drat! Can they really do that whenever they want, and is there anything I can do about it?
No, and yes. No they cannot raise your premium any time they want more profit, they must justify to the state insurance office that they need the increase to pay all the claims coming in. The problem is that we are living longer than they expected, and using more years of care than they anticipated. Nobody is dropping their coverage, as the older we are, the more likely we are to need it. Initially the companies thought some percent would drop coverage, and those policies would not have claims, which did not happen. Additionally, medical research has taught us things such as diabetes leading to Alzheimer’s which was not known about back years ago when you bought your coverage.
So, what can we do? First off, review your initial planning when you made the purchase. You assumed that you could pay part of the LTC costs yourself when you no longer do much traveling, don’t need two cars, motorcycles, boats, motorhomes, etc. You also assumed you could use the interest on your life’s savings to help out as well.
How has that changed? Can you now add more available cash flow to the costs of LTC and thus may be able to lower your coverage? With no annual cruise or trip to Branson you might have more available cash flow and can lower the daily benefit.
You might consider a reverse mortgage on the home. Your children probably are not going to move in after your passing, so why not use the equity to maintain the LTC insurance and preserve the rest of your estate from being consumed by LTC costs?
If you do need to reduce benefits to maintain an affordable premium, bear in mind it is better to have enough monthly cash flow to pay the bills for a shorter number of years, than to not have enough cash flow and have to spend down assets very soon. Thus lowering the number of years of benefits will retain your current monthly cash flow available from the policy. This can be done at any time, not just when the price increase notice comes.
I’ll relate one recent meeting where the gentleman purchased the coverage so in the event he or his wife needed care, the son (who is already farming the family farm) could inherit that farm at at their deaths, versus it being sold to pay for care. Dad worked on the farm for a wage from his son. I pointed out how if the son increased dad’s pay by $800/year, to cover the increased premium, it would help ensure that he could inherit that farm. An $800/year pay increase is far less than a 30 year mortgage on an $850,000 farm if he had to purchase it rather than inherit it.
Bottom line, there are a number of choices one might make when a price increase arrives in the mail. Since less than 20% of LTC is done in nursing homes, perhaps lowering the daily benefit to just be enough to cover home care and/or assisted living type facilities might be appropriate.
For more information, consult your local expert on LTC financing or visit www.TheLongTermCareGuy.com