Q: I have a long-term care policy that I purchased about 10 years ago and have just received a notice that my premium is going to increase by a substantial amount. I am provided with several options for reducing the premium amount but not sure what is best and how it will reduce the premium. Could you provide some information?
A: I have seen the type of letter you describe and have read the usual options available.
Before I talk about the changes available I would like to talk about what you are provided with when you first purchase a long-term care policy.
When a person first decides to invest in an LTC policy the salesperson provides information about the terms of the policy to compare one policy against another. These terms usually are spelled out as daily amount covered for care in a facility, number of years the policy will cover those expenses, elimination period and an inflation factor.
Each of these items carries a price tag and the premium is based on the cumulative amount.
When the issuing company increases the premium, it usually sends a letter with several options that you can select in order to reduce your premium. These options have provided you with new different coverage amounts and in turn have reduced the premium for that coverage.
Let’s talk about each item mentioned above. The daily amount covered for care in a facility usually falls between $100 and $250 a day. If you decide to lower this amount you will be covered for the lesser amount each day you are in a facility. With the cost of care charged by facilities, I would not cut this amount too far. However, by lowering the amount of coverage, you will reduce your premium.
The number of years of coverage reflects the amount of time the policy will pay. On many of these older policies I have seen the number of years being for “lifetime,” and this is a very expensive choice. Choices you may have in this area could be to changed from “lifetime” to three years, five years, six years or 10 years. Reducing the number of years to a lesser coverage will greatly reduce the premium. It would seem that six or a 10-year period is often what the options offer.
The elimination period is just a fancy term for deductible. Usually the elimination period is for 30 days, 60 days or 90 days. The higher the elimination period is the less your cost for the premium. But you must remember that during the elimination period the policy does not pay and you are responsible for the cost of care. So if you selected 90 days you would be responsible for the first three months of care before your policy would begin to cover the cost.
The inflation factor increases your coverage by about 5 percent or 5.5 percent each year. This attempts to keep your coverage in line with inflation. By eliminating the inflation factor your coverage will stay at the current level, but your premium will be less.
The letter you have received should show you several options for reducing your coverage and lowering your premium. The items that are usually offered for change are reducing the number of years of your coverage and dropping the inflation coverage.
I hope this gives you an idea about what you can change and still keep good coverage should you need it.
If you have questions about the rate increase you can call the California Department of Insurance at 800-927-4387. If you need help understanding the choices provided you can call the Advocate’s office at 495-6250.
