I didn’t know my premium could go up!

Tobe Gerard
May 13, 2009 — 1,470 views  
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That is the consumer cry that has resounded in the news media with regard to rate increases on long term care insurance policies. 

What's imperative to know is that long term care insurance policies are Guaranteed Renewable, but the premium you pay is not.  Guaranteed renewable means that you have the right to continue the policy as long as you pay your premiums on time.  If something happens to your health years from now, as long as you pay your premium on time, your policy will be there for you.  But within that same paragraph in the policy you will find words to the effect that  "________________ Insurance Company may increase the premium you pay." 

The words have always been there, but consumers paid little attention to them.

Was there a misunderstanding?  Did agents and brokers not explain the terms and conditions properly?  Who is to blame for these rate increases?  Who is minding the store when it comes to consumer protection? 

Rate increases are generally handled by a state's insurance department. The insurance companies must substantiate actuarially why they are requesting a rate increase.  It is usually within the realm of the insurance department, or independent actuaries who work with the insurance department, to determine if these requests for rate increases are justifiable.  Each state insurance department functions differently regarding approval and implementation. Some have approved rate increases exactly as they were applied for, while others have approved increases but at lesser amounts than what was requested.

Insurance companies point to several reasons why they needed to increase premiums.  The first is that people are living longer, with many people living well into their 80's and 90's, which is well beyond mortality.  The second is that very few people who purchased policies lapsed them.  This high "persistency" exceeded all expectations. The third is that interest rates have been at an all time low since the 1990's.  This resulted in their not receiving the return on their investments that they had anticipated. 

If you purchased a policy in the 1980's or 1990's and compared it with the pricing of that same policy today, there will be a huge difference.  In many cases, even if you factor in a rate increase of 30% on some of these older under-priced policies, they will still be more competitively priced than what is being marketed today.  My husband and I are good examples of this.  If we "rebought" our policies today, those same policies would cost us more than double what we paid for them less than 10 years ago.

So what is the answer?  If you receive a notice of a pending rate increase on your policy, call your agent or broker or the 1-800 number that is listed on the letter. For consumer awareness, you have options and you deserve to explore all of them.  In most cases, if you can't afford to pay the new premium, you will be able to downgrade your policy to something more affordable.  By this I mean either lowering the daily benefit, changing the benefit duration, changing the inflation, or increasing the elimination period (deductible).   

I don't underestimate the financial pain that rate increases can cause policyholders, especially older policyholders, but my advice is always the same: "Do not lapse your policy under any circumstances!  You will never be younger or healthier than you were when you first purchased your policy!"

Tobe Gerard

Tobe Gerard Insurance, LLC

Tobe Gerard has spent 30 years in the insurance business. Her wide range of experience with organizations such as The Insurance Library of Boston and the Massachusetts Association of Insurance Agents gives her a broad perspective and a deep understanding of trends and shifts in the industry. She has a professional background in life, disability, health, and, most importantly, long-term care insurance. In 1999, Tobe launched her own insurance agency, specializing exclusively in long-term care.