You’re not alone if you bought long-term care insurance because
you thought it prudent — and now face the possibility of losing the coverage as
premiums rise.
By LIZ WESTON OCT.
6, 2019
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.
Liz Weston,
Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions
may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by
using the “Contact” form at asklizweston.com.
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