Receiving notice of a premium increase on a long-term care insurance policy can be a frustrating experience. As a policyholder, you have planned responsibly for future care needs, and an unexpected rate adjustment can feel like a setback. It is important to understand that these adjustments, while unwelcome, are a structured component of how these policies are managed and regulated over the long term.

This article provides a clear explanation of why long-term care insurance premium increases occur, the regulatory process behind them, and the options available to you as a policyholder. With a strategic approach, you can navigate these changes without compromising your future financial security.

Why Do LTC Insurance Premiums Increase?

Long-term care insurance premiums are not increased arbitrarily. When these policies were first developed decades ago, insurers had to make actuarial assumptions based on the limited data available. Over time, actual experience has often diverged from these initial projections.

Premium increases are a direct result of insurers needing to ensure they have sufficient funds in the risk pool to pay all future claims. The primary drivers behind these adjustments include:

• Lower-Than-Expected Investment Returns: Insurance companies invest the premiums they collect. When long-term interest rates are lower than originally projected, the investment returns are not sufficient to cover future liabilities, requiring a premium adjustment.
• Lower Policy Lapse Rates: Initial pricing models assumed a certain percentage of policyholders would let their coverage lapse over time. In reality, people are holding onto their policies at much higher rates, meaning more people will eventually be eligible to file a claim.
• Higher-Than-Anticipated Claims: The cost and duration of long-term care have exceeded early projections. People are living longer, often with chronic conditions that require extended periods of care, leading to higher and more frequent claims than originally anticipated.

Recently, many insurers have indicated that the most significant reasons for rate adjustments are directly related to the increased use of LTC services and claims that last longer than in the past. As medical advancements extend lifespans, the need for long-term care services has grown, placing greater demand on the insurance risk pool.

The Regulatory Approval Process

An insurer cannot simply decide to raise rates. Long-term care insurance is heavily regulated at the state level. To implement a premium increase, an insurance company must undertake a rigorous approval process.

1. Filing for an Increase: The insurer must file a detailed request with the insurance department of each state where it operates. This filing includes extensive documentation and actuarial data justifying the need for the increase.
2. State Review: Each state’s insurance department independently reviews the request. Their primary objectives are to protect consumers from excessive rate hikes while also ensuring the insurer remains financially solvent and capable of paying future claims.
3. Approval, Modification, or Denial: The state can approve the requested increase, deny it, or approve a modified (often lower) amount. To lessen the immediate financial impact on policyholders, regulators sometimes require the approved increase to be phased in over several years.

This process ensures that any premium adjustment is actuarially justified and necessary for the long-term health of the insurance pool.

Your Options When Facing a Rate Increase

If you have a policy with an insurer like Mutual of Omaha, you may soon receive a detailed letter outlining a premium increase. It is essential not to act rashly. This letter will provide specific options for managing the new cost. While maintaining your current coverage is often the most prudent course of action, you have choices.

Your options to adjust your policy and mitigate the cost increase typically include:

• Reduce the Daily or Monthly Benefit Amount: Lowering the amount the policy pays per day or month will reduce your premium.
• Shorten the Benefit Period: You can decrease the total length of time your policy will pay benefits (e.g., from five years to three years).
• Adjust Inflation Protection: Your policy likely has a feature that increases your benefit amount over time to keep pace with rising costs. You can reduce the rate of this inflation protection (e.g., from 5% compounded to 3% compounded) or, in some cases, stop future increases.

While these modifications will lower your premium, they also reduce your overall coverage. It is crucial to weigh the immediate savings against the potential long-term impact on your financial plan.

Why Maintaining Coverage is Often Recommended

While a rate increase is never welcome, these policies are designed with periodic adjustments in mind. The coverage you have in place is likely far more valuable than what you could purchase today, especially if your health has changed. Dropping the policy means losing all the premiums you have paid and forfeiting protection against what could be a catastrophic financial event.

Before making any changes, it is important to review your specific situation with a knowledgeable professional. We can review the options presented by the insurer, discuss how each modification would affect your future protection, and help you make a decision that aligns with your financial goals.

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About the Author

Bob Gertie
Advisor Insurance Resource

Bob Gertie is a recognized expert in the field of risk management, helping clients navigate the complex landscapes of Life, Disability, and Long-Term Care insurance. With a focus on education and transparency, Bob works exclusively with fee-only financial professionals and their clients to deliver competitive, high-quality insurance solutions. His deep understanding of policy structures and claims processes ensures that clients receive the protection they expect when they need it most.

Contact Bob for a Consultation:
Phone: (866) 942-4181
Email: Bob@AdvisorInsuranceResource.com
Website: www.AdvisorInsuranceResource.com

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