One of the issues I am asked about far too often is regarding what happens when you receive a letter from your long-term care insurance company stating your premium is going to increase substantially. This is an issue that has become all too frequent when it comes to long-term care. In today’s world, it’s not unusual for a long-term care company to raise premiums by as much as 40 percent. In addition, it’s not unusual for long-term care policies to seek substantial premium increases every few years. The result is that many seniors are forced to make a decision as to what they should do with their long-term care insurance.
Typically, when a long-term care insurance company notifies you of a premium increase, there are generally a few different options. The first option is to do nothing. With this option you would continue to make your same premium payment; however, your benefits would be reduced. Another option that is available is to reduce the benefit period. For example, you may have had a policy that would pay you for life, but by reducing that benefit period to three years it would substantially lower your premiums. The bottom line is that there are options. The key is to determine whether any of these options apply to your individual situation. When you receive a notice of a premium increase, the first thing I recommend is to determine whether the policy is necessary. Don’t focus on what you paid in the past, because that is relatively immaterial to the issue at hand which is, should you continue the policy. To me, when it comes to any type of insurance, it is need based. The question you ask yourself today is do you need the coverage? Don’t ask yourself what you should have done 10 or 20 years ago; that is somewhat immaterial. The key question is simply, do you need a long-term care policy. If the answer is no, then you should cancel your policy. On the other hand, if you do need the coverage, you need to proceed differently.
If you determine that you need a long-term care policy, I think it makes sense to not only review the options with your existing company, but also, get some competitive bids from other companies. You may find that by shopping the policy around you can significantly lower your premiums.
One phenomenon that you see when people purchase insurance is they tend to select the insurance with the least expensive premium. Although I am a big believer in the importance of saving money and shopping around, it is important to remember that the cheapest policy is not necessarily the best policy. Remember, particularly with long-term care insurance, how the company pays their claims is essential. Therefore, if you are going to research a new company, I would make sure you spend time understanding how the company pays their claims. Just because the salesperson says they pay their claims is relatively meaningless to me. I want to be able to check it out independently. In addition, I also want to check out the company’s history with regard to raising premiums.
Like in every other profession there’s good and bad. If you’re dealing with a long-term care agent who is only concerned about selling you a policy, your best course of action is to walk away. You want to make sure that you’re dealing with an agent you can ask questions to and one who is honest with you. If you’re dealing with a long-term care agent and they’re not being upfront and honest with you, it is a sure sign you need to make a change. The key is not to let anyone pressure you into buying a policy. You should not buy a policy until you’ve had the opportunity to check the company out independently. Remember, some of the issues you need to check out independently are how often the company raises their premiums and how they pay their claims. These are essential ingredients to a good long-term care policy.
Unfortunately, premium increases are the norm when it comes to long-term care. Therefore, you should not buy a policy based on the fact that the premiums won’t increase, because they will. The key is to be able to find an affordable policy that meets your individual needs.
If you get one of those letters from the insurance company raising your premiums, don’t panic; you have options. The key is to take your time and make the right decision for yourself and not let anyone pressure you in any one direction.
If you would like Rick to respond to your questions, please email him at Rick@bloomassetmanagement.com.