Q&A: If long-term care insurance costs too much, you have a choice to make

Dear Liz: We were told to buy long-term care insurance early because waiting too long would make it more expensive and perhaps unavailable. I bought mine when I was 55. At the time, it was $2,400 a year. Unfortunately, the premiums just kept going up. I am now 77, and the premium this year was $4,470. The letter informing me of this increase said that next year it will go up 6% to $4,738, and 6% again the following year to $5,022. It’s very clear to me that buying the insurance early was definitely not an advantage. The insurer will obviously keep raising the premium at will. Since I am, like most people my age, on a fixed income, the time will come when I simply cannot afford these premiums. I will then lose the insurance plus all I have paid into it all these years. People should be told that the premiums will continue to rise, and that the time may come when the cost is beyond what anyone on a fixed income can afford.

Answer: Many people are in the same unfortunate situation. They purchased policies because they thought it was the prudent thing to do, only to face the possibility of losing coverage as premiums continued to rise.

Companies that offered long-term care insurance starting in the 1980s and 1990s discovered they didn’t price the coverage accurately. Far fewer people dropped their policies than expected, while the costs of long-term care increased more than anticipated. Many insurers stopped offering the coverage, and massive premium increases were the norm for a while.

Insurers can’t raise premiums “at will,” by the way. The increases must be approved by regulators, who weigh the effects on customers against the possibility an insurer might go under and be unable to pay anyone.

The companies still selling long-term care coverage now offer less generous policies that probably won’t require huge premium increases. Still, many financial planners advise their clients who are buying coverage now to expect their premiums to increase 50% to 100% over their lifetimes.

It’s important to keep in mind that insurance is not like an investment or a savings account. You don’t buy homeowners insurance hoping your house will burn down someday so that you can get your money back. You buy it to protect your finances against catastrophic loss. So it’s not as if you received nothing in return for your long-term care premiums: You were protected against a potentially catastrophic cost that — fortunately — didn’t happen.

That doesn’t mean you were wrong to expect your premiums to remain affordable. Given your current reality, though, you’ll need to decide if you want to risk dropping coverage entirely or if reducing coverage might be an option. Many people in your situation have opted for longer waiting periods, lower inflation adjustments or a reduced benefit period to keep premiums affordable.

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  1. June W Lovell says

    I visited with a 70-ish woman in a nursing home yesterday (I’m a Long Term Care Services Ombudsman). She wrote a check for $5100 to her Skilled Nursing Facility for one month of care. She fell at home. She completed rehab but will need care for an indefinite period. The going rate in SoCal through an agency runs $20-$30/hour for a home health aide.

  2. Liz –
    Appreciate your article, but feel you are only telling maybe half of the story when it comes to what is available in the long term care insurance space. I agree 100% premiums may get out of hand for some folks if they have purchased “traditional” use it or lose it ltc coverage. What you fail to mention in your article is the way these insurance companies are adapting the product line up to combat the rising cost of insurance. One example of this is the firms that have developed products designed on a whole life insurance policy chassis or an annuity like contract.

  3. Michael Deck says

    I have to disagree with your analysis, Liz. We looked at *lot* of LTC policies and none of them “protect your finances against catastrophic loss.” Like term-life insurance, they cover a fixed set of costs that you may or may not experience. You pay X in premiums and typically the insurance covers 2X or 3X in LTC expenses. After that, you’re self-insured. That’s opposite how auto or fire insurance works, where you cover a known deductible and then the insurer covers the (possibly vast) costs from there. A lot of people I talked with misunderstand this, so they buy LTC thinking it will cover the catastrophic upside, but it definitely does not. Now it’s true, 2X or 3X might be considered catastrophic, but folks need to understand what LTC covers and doesn’t.

    • Liz Weston says

      Catastrophic coverage isn’t necessarily unlimited. Check your auto and home policies. Your liability insurance, for example, isn’t open ended. You’re covered for X amount, but you could be successfully sued for far more. Also, your insurer likely won’t pay whatever it costs to rebuild your home. They’ll pay a certain (large) amount, and perhaps you’ve paid extra for a rider that adds another 25% to that amount in case building costs soar (as they tend to do after a wildfire or other widespread catastrophe). Many people don’t understand how insurance works, period, but since truly unlimited coverage often isn’t available, the next best option would be to cover the most likely scenarios — which in the case of LTC insurance is a nursing home stay of three years or less.