Ditch Your Sky-High Long-Term Care Insurance?

Dear Insurance Adviser,

My wife and I have long-term care insurance and are in good health. I'm 75, and she's 73. Our insurer recently increased our premiums by 78%, to about $5,000 per year. We're thinking of dropping our policy, because it's a lot of money and we may never even use the insurance. What's your advice?

-Jack

Dear Jack,

It's beyond ridiculous that any insurance company can raise rates on any policy by 78% at one time. And it's especially ridiculous and unfair on a long-term care policy owned by someone retired and on a fixed income.

You're in good health and could probably shop for less expensive insurance if you so desired. Not true for a lot of seniors, however. Long-term care insurers need to do what long-term disability insurance companies did 30 or 40 years ago and offer policies with a guaranteed renewable premium for life. If they don't, the government will probably end up passing legislation prohibiting the kind of increase you're describing at any one time.

If it is any consolation, know that the state insurance department where you live had to approve the increase, so the insurance company truly has been losing money on long-term care insurance and was able to justify the increase by documenting poor claims experience. On top of that, when you bought your policy, interest rates were probably higher than they are today. Insurance companies project investment income when setting their prices. Needless to say, given today's very low rates, that projection has sorely missed the mark.

As for what you can do about your specific rate increase, you have choices besides either paying the increase in full or dropping the policy. Your insurance company probably gave you a few different options. You could lower the inflation percentage on the cost-of-living annual benefit increase (i.e., from 5% to 3%). You could lower your benefit duration -- how many years the policy will pay you benefits while you are receiving long-term care. For example, you may have a lifetime benefit now but could save 40% by lowering that benefit duration to six years.

The only advice I can give you for sure is to not drop your policy altogether. I do recommend that you talk to a financial planner or your long-term care insurance agent for guidance. By knowing your specific financial circumstances, these professionals will be able to help you decide on the best course of action.

Good luck to you both.

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