What You Should Know About Long-Term Care Insurance Premiums

Author: Duane Lipham, CLTC

Affordability is a very important ingredient in any successful long-term care plan. That is why the premium cost is often the most important factor in the minds of consumers that are considering the purchase of LTCI.

One of the most commonly asked questions that I receive is "Will my premiums ever increase?" The answer is that there are a couple of scenarios where LTCI premiums could increase and I will try to explain one in this article and follow up with the second in a future article.

The first scenario has to do with a choice the policyholder makes regarding inflation protection. Most LTCI policies have automatic inflation protection built into the policy design from the beginning and in such cases the premium is designed to stay level for the rest of the life of the policyholder. The benefits always increase each year but the premium remains the same.

Some insurance carriers offer a different kind of inflation protection where the policyholder starts out with no automatic inflation protection and instead benefit increases will be offered every three years or so. These increases can usually be accepted or declined by the policyholder. This means that your premium will be increasing every three years for the rest of your life or until you start receiving policy benefits.

The problem with this inflation protection choice is that the policyholder is three years older when each offer of extra benefits is made and the cost of the added benefits is based on the later age, not on the age of the policyholder at the inception of the policy. This can result in a large increase in premiums in later years and some consumers simply drop these policies after a while since they just can't afford to continue paying premiums that are so much higher than their original premium cost.

Group policies often offer this kind of inflation protection to stay competitive with individual LTCI policies. It is very important for consumers to understand the long-term effects these kind of premium increases can have before finalizing their decision. Unfortunately, I often see many policyholders that did not understand the ramifications of this kind of inflation protection when they purchased the policy. They sometimes find themselves locked into a policy that is constantly increasing in price and have few options for switching to a more affordable LTCI product because of their age and/or health circumstances.

It is true that automatic inflation protection increases that are built into the premium cost from the inception of the policy will initially be more expensive than a periodic increase offer. But in my opinion, in most circumstances, it is better to lock in your inflation protection costs at an early age, and know that your premiums will remain stable, than take the chance on an ever-increasing premium that may eventually be too much to afford.