Long Term Care Premiums Are on the Rise

What can you do to protect yourself?

Long term care planning remains a serious and expensive proposition. Recent news suggests that all policy owners should brace themselves for significant increases in future long term care insurance premiums.

John Hancock has proposed a 40% premium hike for a majority of customers, Genworth has proposed an 18% increase, and MetLife has stopped selling long term care insurance altogether. (These increases must still be approved by state regulators.) [Source: Money Magazine, December 2010.]

Rising health care and premiums costs affect not only those folks with existing policies, but also those who choose to self insure. So what can you do to prepare?

First, look at the bigger picture. Ask yourself, “How do these increases affect my retirement picture?” Long term care insurance is one way to protect retirement assets from large and unexpected increases in health care costs, which continue to be on the rise. Approximately 70% of people over age 65 will need long term care at some point during their lifetime – a sobering statistic. [Source: National Clearinghouse for Long-Term Care Information, 2009] The need to prepare is real, as is the inclination to push the conversation off for another time. Now, more than ever, is the time to address these costs.

Here are a few steps to consider:

If you are considering long term care insurance
When reviewing insurance benefits, pay close attention to premium affordability based on current and expected retirement income. In reality, not everyone can afford an insurance policy. And, for some, the option to self-insure -- pay for health costs out-of-pocket -- may be the better option. Rarely will an all-or-nothing solution make the most sense. Work with a qualified advisor, not just an insurance agent, to carve out unexpected health care costs that may occur during retirement, and then build a combination of solutions to address these costs.

If you own an older policy
It’s important to review your existing policy with your financial planner. Take a closer look at your premium cost and future expected income. Determine whether or not you will be able to afford future increases. A rule of the thumb suggests that premiums should not exceed 7% of total income. For older policies, you probably will not find a better deal, but you may be able to alter coverage to more closely fit today’s needs.

If you just purchased a newer policy
Newer policyholders (with no health changes) should consider shopping for additional insurers and exploring new insurance options. In recent years, there have been many hybrid options to consider in place of traditional long term care insurance. These products involve reallocating savings or investments into an insurance vehicle with long term care benefits attached. Since these products are relatively new, it’s important to work with your planner to incorporate them into your overall retirement planning.

Start planning but proceed carefully
Do your research, but do not make a snap decision. Premium increases and rising costs can stir up many emotions. Keep your long term care planning in perspective; it’s still just one piece of life’s financial puzzle. By deciding to alter or purchase coverage as part of your overall financial plan, you can create the retirement and long term care picture you desire.