If you decide you can afford to buy a long term care insurance policy, there are two main ways in which you may be able to pay your premiums—the continuous payment
option and the limited payment option.
Under the continuous payment option, you would pay the premiums on your policy until you trigger your benefits, traditionally on a monthly, quarterly, semi-annual or annual basis. The policy is not cancelable except in the event of nonpayment of premiums; however, the insurance company can increase premiums on an entire class of policies. Premiums are usually the lowest available under this payment option.
In addition to the continuous payment option, you may be able to pay your premiums under a limited payment option. Under this option, you would pay premiums for a set time period using one of the following ways:
- Single pay. This allows you to make one lump-sum payment.
- 10-pay and 20-pay. This allows you to complete payment of your premiums in 10 or 20 years, depending on the option you choose. You might choose this option if your income will be lower in 10 or 20 years.
- Pay-to-65. You pay higher-than-usual premiums, but payments end when you reach age 65.
After the last premium payment, neither you nor the company can cancel the policy. Policies with the limited payment option are more expensive than continuous payment policies, because your premium is set at a higher rate than it would have been had you paid over a longer period of time. In addition, unless the contract fixes your premium for the pay period, it could increase. However, the guaranteed fixed payment and the no-cancel features make limited payment premiums attractive to some clients. You should consult your tax advisor for information on the tax treatment of accelerated premium payments. It is important to note that not all of these payment options are offered by all companies or are available in all states. Check with the insurance company to see what payment options it offers. Also check with your state insurance department to find out what options your state allows. A directory of state insurance departments begins on page 56.
If You Already Own a Policy, Should You Switch Plans or Upgrade the Coverage You Have Now?
Before you switch to a new long term care insurance policy, make sure it is better than the one you already have. Even if your agent now works for another company, think carefully before making any changes. First check to see if you can upgrade the coverage on your current policy. If not, you may replace your current policy with a different one that gives you more benefits, or even choose a second policy. Be sure to discuss any change in your coverage with your financial advisor.
If you decide to switch to a new long term care insurance policy, make sure the new company has accepted your application and issued the new policy before you cancel the old one. When you cancel a policy in the middle of its term, many companies will not give back any premiums you have paid. If you switch policies, new restrictions on pre-existing conditions may apply. You may not have coverage for some conditions for a certain period.
Switching may be right for you if your old policy requires you to stay in the hospital or to receive other types of care before it pays benefits. Before you decide to change, though, make sure you are in good health and can qualify for another policy. If you bought a policy when you were younger, you might ask the insurance company if you can improve it. For example, you might add inflation protection or take off the requirement that you stay in the hospital. It might cost less to improve a policy you have now than to buy a new one.
