A recent article in Investment News reported that “roughly 40 to 45 states have approved ‘significant premium increases’” on many long-term care insurance policies. Author Greg Iacurci further reports that Genworth “received approval in Q1 to increase premiums an average of 62%.”1 This is nothing new given the premium hikes many policyholders received in 2017 and 2018, but the next round of hikes could be unprecedented. Some policies could see a 200% to 300% increase!
Premium increases will not be immediate. Most providers notify policyholders of the increase when annual premiums are due. So, policyholders may not see a rate hike notification for many months.
According to Genworth2, one of the largest issuers of long-term care insurance policies, “more people are keeping their policies than originally anticipated.” Increased cost to providers is also due in part to longer lifespans and the length of long-term care stays. This has led to an overall increase in claims, thus more money is being paid out by providers, and they are faced with having to cover these unanticipated claims.
Many policyholders will face a tough decision. When premium hikes are implemented, many insurance providers will provide a couple of options. Policyholders can maintain their coverage as is and pay the higher premium, elect a lower premium while cutting back on benefits, or allow the policy to lapse. The option for cutting back on benefits may allow policyholders to adjust their benefits paid amount, decrease their rate of inflation protection, shorten their benefit period, lengthen their elimination period, cancel riders on the policy, or some combination thereof.
John Hancock, may offer another option: elect a co-pay on your long-term care insurance costs. The co-pay would work very similar to the medical insurance co-pay process by allowing the policyholder to pay for a percentage of the expense while the insurance company pays the rest. It is not yet clear if John Hancock will make it available to existing policyholders or if the new co-pay election will only be available to newly issued policies. Given the nature of this new type of offering, state regulators will likely have to approve the option.
Before making a decision, talk to your financial advisor to see how the option fit your plan.