In most states, long term care insurance policies sold today must be guaranteed renewable. When a policy is guaranteed renewable, it means that the insurance company guarantees you a chance to renew the policy. It does not mean that it guarantees you a chance to renew at the same premium. Your premium may go up over time as your company pays more claims and more expensive claims. Insurance companies can raise the premiums on their policies, but only if they increase the premiums on all policies that are the same in that state. No individual can be singled out for a rate increase, no matter how many claims have been filed.
In some states, the premium cannot increase just because you are older. If you bought a policy in a group setting and you leave the group, you may be able to keep your group coverage or convert it to an individual policy, but you may pay more. You can ask your state insurance department if your state requires this option.
How Much Do Long-Term Care Insurance Policies Cost?
A long term care insurance policy can be expensive. Be sure you can pay the premiums and still afford your other health insurance and other expenses. Premiums will vary based on a variety of factors. These factors include your age and health when you buy a policy and the level of coverage, benefits and options you select for your policy. If you buy a policy with a large daily benefit, a longer maximum benefit period, or a home health care benefit, it will cost you more. Inflation protection and nonforfeiture benefits can increase premiums for long-term care substantially.
Inflation protection can add 25% to 40% to the premium. Non-forfeiture benefits can add 10% to 100% to the premium, as noted on page 25. In fact, either of these options can easily double your premium, depending on your age when you buy a policy. The older you are when you buy long term care insurance, the higher your premiums will be, as it’s more likely you will need long-term care services. (See “Who May Need Long-Term Care” on page 6.) If you buy at a younger age, your premiums will be lower, but you will pay premiums for a longer period of time. Recent studies have found the average age of purchasers was age 65 in the individual market and age 43 in the employer-sponsored market.
Here is an example of how much premiums can fluctuate based on your age and your coverage options:
The average annual premiums for basic long term care insurance ($100 daily benefit amount, four years of coverage, and a 20-day elimination period) that do not include a 5% compound inflation protection option or a nonforfeiture benefits option were:
- $300 for a 40-year-old.
- $409 for a 50-year-old.
- $1,002 for a 65-year-old.
- $4,166 for a 79-year-old.
The average annual premiums for the same policy with the 5% compound inflation protection option but no nonforfeiture benefit option were:
- $649 for a 40-year-old.
- $881 for a 50-year-old.
- $1,802 for a 65-year-old.
- $5,895 for a 79-year-old.
The average annual premiums for the same policy with the nonforfeiture benefits option but no inflation protection were:
- $382 for a 40-year-old.
- $506 for a 50-year-old.
- $1,196 for a 65-year-old.
- $5,067 for a 79-year-old.
The average annual premiums for the same policy with both the 5% compound inflation protection option and the nonforfeiture benefits option were:
- $798 for a 40-year-old.
- $1,087 for a 50-year-old.
- $2,130 for a 65-year-old.
- $7,000 for a 79-year-old.
Remember, your actual premium may be very different if it’s based on other factors.
Another issue to keep in mind is that long term care insurance policies may not cover the entire cost of your care. For example, your policy may cover $110 per day in a nursing home, but the total cost of care may be $150 per day. You must pay the difference. Remember, medications and therapies will increase your total daily costs for care. The costs of long-term care in your state should influence the amount of coverage you buy and the premiums you will pay. (See “How Much Does Long-Term Care Cost?” on page 4.) When you buy a long-term care policy, think about how much your income is and how much you could afford to spend on a long term care insurance policy now. Also try to think about what your future income and living expenses are likely to be and how much premium you can pay then. If you don’t expect your income to increase, it probably isn’t a good idea to buy a policy if you can barely afford the premium now.
You also need to think about whether you could afford a rate increase on your policy some time in the future. Remember, while a company cannot raise your rates based on your age or health, the company can raise the rates for an entire class of policies. Some states have laws that limit rate increases. Check with your insurance department to learn how your state regulates rate increases. Again, it probably isn’t a good idea to buy a policy if you can barely afford the premium now.
NOTE: Don’t be misled by the term “level premium.” You may be told that your longterm care insurance premium is “level.” That doesn’t mean that it will never increase. Except for whole life insurance policies and noncancellable policies or riders, companies cannot guarantee premiums will never increase. Many states have adopted regulations that don’t let insurance companies use the word “level” to sell guaranteed renewable policies. Companies must tell consumers that premiums may go up. Look for that information on the outline of coverage and the policy’s face page when you shop.