A Sneaky Secret About Long-Term Care Insurance Premiums

Affordability is one of the key ingredients in any successful long-term care plan. Which is why the premium cost is often the most important elements to consumers who are considering the purchase of LTCI.  One of the most common questions I hear is: ” Will my premiums ever increase? ” The answer is this: there are lots of scenarios in which LTCI premiums could increase. I will try to expound one in this article and follow up with the second in a future article.  The first scenario involves a choice the policyholder makes regarding inflation protection. Most LTCI policies have automatic inflation protection built into the policy design from the beginning; in such cases the premium is designed to stay level for the life of the policyholder. The benefits increase each year, but the long term care insurance premium remains the same.

Inflation Protection: What You Need to Know

There are some insurance carriers that offer a different kind of inflation in which the policyholder starts out with no automatic inflation protection instead, benefit increases would be offered every three years or so. These increases can actually be declined or accepted by the policyholder. This means that your premium would increase 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. 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 significant increase in premiums in later years. There are customers who simply drop and forget these policies after a while, as they just can’t afford to continue paying long term care insurance premiums that are so much higher than the cost of the original premium.

Long-term Effects of Premium Increases

There are group policies that often offer this kind of inflation protection to stay competitive with individual LTCI policies. Before they start finalizing their decision, it is very important for consumers to understand the long-term effects that these premium increases can have. Unfortunately, there are lots of policyholders who did not understand the ramifications of this kind of inflation protection when they purchased their 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 due to their age and/or home health care 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.