Q&A: Rising insurance premiums

Dear Liz: I’m an insurance agent specializing in long-term-care policies and just read your advice to the woman who was upset about how much her premiums had risen. Her premiums were $2,400 annually starting when she was 55 but are $4,470 now that she’s 77. First, thank you for noting that these premium increases are because insurance companies didn’t expect people to live so long and nursing home rates to increase so much. Please also tell your reader that, at her age, her premium for the coverage she has now would be well over $12,000! She bought early and she’s definitely getting a ridiculously low premium for the coverage she has. I’m sorry that she’s on a fixed income, but ask her how she’ll pay for a $60,000-per-year stay in a nursing home. If she can’t afford her premium, she should reduce her amount of time covered, not the amount of dollars covered.

Answer: Let’s be clear about who’s at fault here. It’s not the people who bought long-term-care insurance policies and expected them to remain affordable.

Insurers are supposed to be experts at predicting risk, but they made incorrect assumptions about how many people would drop their policies (known as the lapse rate), how many would file claims and how long those claims would last. Insurers also overestimated the returns they could get on their bond investments, which also help determine premiums.

All these stumbles have led to repeated premium increases that have threatened to make coverage unaffordable right when people need their coverage the most.

This woman is well aware of the high costs of long-term care; that’s why she bought the policy in the first place and kept paying it all these years. Her premium might seem “ridiculously low” to you, but anyone with an ounce of empathy could understand that $4,470 is a huge chunk of change for most seniors.

Keeping her coverage means giving up some of the benefits she was promised and had been counting on. Reducing the number of years the policy protects her, for example, could make her premium more affordable but leave her exposed to devastating costs if she needs many years of care.

This is a crappy situation for people who were trying to do the right thing. They don’t deserve to be sneered at for being upset about it.

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  1. My wife and I are both 64 and retired. We are not receiving Social Security…our current plan is to wait until we are 70 to collect Social Security. Our current income, dividends, interest and capitol gains, is over $100,000. I wonder about how or if our Social Security benefits will be taxed and if our medicare premiums will be affected when we start to collect Social Security. Is investment income treated the same as earned income with regards to Social Security and Medicare?

  2. Thank you Liz for a well written comment on the difficult situation LT insurance has put us in.

  3. This is an absolutely horrible situation that these greedy insurance companies have imposed on seniors who can no longer afford their coverage. Meanwhile the insurance company executives continue to live high on the hog!! Millionaires or more than likely billionaires!! A huge class action lawsuit needs to be filed against the company’s. Seniors should get their total premium investment back plus interest!! Bait and switch comes to mind here.