I Just Got a Rate Increase on My Long Term Care Insurance Policy (Part 3)

By Fredrick P. Niemann, Esq. of Hanlon Niemann Wright, a Freehold, NJ Estate Planning Attorney

In my last post I was reviewing with you Jim’s dilemma.  He received a notice of a rate increase from his long term care insurance company.

I went through with you the options outlined in that letter.  For some people in Jim’s situation Option B may be the way to go, redesigning their policy.  For example, if you have a policy that, with the inflation rider, covers $300 a day for lifetime you probably have more coverage than you need.  A simple solution would be to reduce the daily benefit and switch from lifetime coverage (which most companies don’t offer anymore) to a lifetime cap of 4 or 5 years.  In many cases that could dramatically reduce or entirely eliminate the rate increase you face.

There is, however, another concern to be aware of.  There are far fewer insurance companies offering the type of traditional long term care insurance that Jim has than there were 10 or 20 years ago.  As rate increases for these policies become more commonplace healthier policyholders are more likely to look to switch to other ways to pay for long term care.

As I have talked about in previous posts on this blog, there are some asset based long term care products that may be more attractive.   Some of those products permit you to lock into premiums with no future increases.  Not everyone, however, will be a good fit for these options.  Getting through the underwriting process could be a problem for some because they may no longer be healthy enough.

How does this impact someone like Jim?  Over time, if healthy policyholders choose Option C, effectively dropping their policies because they have decided to go elsewhere for their long term care coverage, that will leave only the sicker policyholders who will have no choice but to stay.  That could cause steeper and more frequent premium increases as the insurance company pays more in claims than it is receiving in premiums from fewer and fewer healthy policyholders.  It becomes a cyclical thing.

Food for thought for many who find themselves in the same shoes as Jim and one more reason that planning for long term care is so challenging but ever more important as the American population continues to age.

To discuss your NJ estate planning matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.