When you own a Stand-Alone “Traditional” Long Term Care Insurance policy, it’s important to understand when to consider making changes to the policy. There are benefits and/or consequences that may affect your premium. Therefore, it’s a good idea to educate yourself on how to recognize an Unsolicited Offers from Your LTCI Company and when the time may be right to make a valuable change to your current policy.
You made a wise decision many years ago to purchase a LTCI policy, to protect your assets and pay for a future long term care event. Please do not make any changes or cancel your policy until you fully understand your policy benefits and any options presented to you by the carrier.
Compare The New Offer to your Current Policy
Some insurance companies may send an unsolicited offer suggesting you reduce the benefits of your Stand-Alone LTCI policy prior to the annual renewal. This is unusual and can mean the offer is financially advantageous to the insurance company rather than to you.
If you are questioning the offer and changes, contact Gordon Associates for expert advice. Unfortunately, not all carriers notify us of client correspondence, so we encourage our clients to reach out with any questions (or provide copies of documentation they received).
Note that when an insurance company offers to reduce your LTCI benefits, it often includes a reduction in one or more of the terms or benefits of your policy. Usually, the carrier offers the following reduction options:
- Reduce or Remove the Inflation Rider
- Reduce the Daily or Monthly Benefit Amount
- Change the Elimination Period (increasing your out-of-pocket time in most cases)
- Reduce the Years of Coverage
- Reduce the Total Maximum Coverage (pool of money)
These options usually come with reduced premiums. Will the offer benefit you? Possibly, depending on your personal situation. Will the offers benefit the insurance carrier? Most likely.
Real Examples from Gordon Associates Clients
When the Offers Increase the Elimination Period
A client of ours received an offer from his insurance carrier to reduce his benefits in exchange for a lower annual premium. He was offered three choices. One of the choices increased the elimination period (deductible) from 30 days to 90 days. The elimination period is the number of days he would pay out of his own pocket for long term care expenses before the LTCI policy starts to pay.
With his current policy, he has an annual premium of $3,482.84 and an elimination period of 30 days. The offer from the insurance carrier reduced the annual premium to $2,189.95, but increased the elimination period to 90 days.
He consulted with Gordon Associates to determine if this offer or the other two offers were good choices. Here’s what we found with the first offer.
Initially, he would save $1,292.89 in annual premiums. The carrier also gave him the following estimates of the average cost of care in the local area. Using these costs we compared the premium savings to the potential cost increases for 60 additional days:
- Assisted Living: $181.55 per day. The premium savings is used in about 7 days. 60 more days would cost $10,893.
- Home Care: $217.28 per day. The premium savings is used in 6 days. 60 more days would cost $13,036.80.
- Nursing Home: $341.81 per day. The premium savings is used in about 4 days. 60 more days would cost $20,508.60.
Ultimately, he would spend significantly more money on his care during the longer elimination period, so we advised him not to take this offer.
When the Offer Decreases How Long the Policy Pays Out
Another client received a similar letter offering to reduce the premium in exchange for 3 options to reduce benefits. One of the scenarios would reduce the Lifetime Maximum Benefit (the grand total amount the policy would pay) from $896,884 to $672,663. The premium would reduce from $1998.70 down to $1,188.44, which sounded appealing to our client.
However, what if the letter were rephrased and said that the length of coverage was being reduced from 4 years down to 3? Does it sound as appealing? The decrease in the grand total the policy would pay is $224,221. The policy pays up to $614.32 per day if the policy holder lived in a facility. $224,221 divided by $614.32 equals 365 days, or a full year’s reduction.
Many people could read $672,663 and think “that’s still a big amount” and take the offer. However, since most people use their Long Term Care Insurance policy for 3 – 5 years, reducing coverage by a year might be a real concern.
When The Offer Decreases the Inflation Protection Rider
Another client’s policy was quite generous: among other benefits it automatically increased benefits each year by 5% (ie, compound inflation protection – also called the inflation rider) and paid up to $617.42 per day to live in a facility. The annual premium was $1,385.61.
One scenario offered to eliminate the compound inflation rider and reduce the annual premium down to $717.25, or a savings of $668.36 per year. With inflation protection at 5% each year, in the first year alone the increase in benefits for living in a facility could be as much as $11,268 ($617.42 x 365 days equals $225,358. 5% growth is $11,268). By eliminating the inflation protection rider the policyholder’s policy would shoulder the extra burden and run out of benefits a little faster each year.
Just like with our clients, if you get an offer from your insurance carrier we highly recommend that you compare the savings in annual premium to the reduction in benefits. You also need to read the fine print carefully. Once you reduce your benefits, they cannot be increased in the future.
Do you have to take one of the offers from your LTCI Company?
No, not unless the carrier states otherwise. Our clients’ offers were optional, but we had to take a thorough look at the details to learn this. In the cover letters they received, the carriers made it easy to see that the offers included reduced premiums. Lower premiums can be enticing. The carriers said, “We have enclosed options to reduce the premium through coverage modifications.” This sentence was bolded and easy to find. Further down in the letter the carrier also said, “To keep your existing coverage, you do not need to take any action.” This sentence was not buried, but it was not exactly easy to find either.
You Can Negotiate offers from you LTCI Company
Suppose our clients needed to reduce their LTCI policy’s annual premium cost, but the three options they were offered didn’t meet their needs? They can negotiate. We help our clients do this from time to time and make them aware there may be other options available to them. The annual renewal period is a good time to review current benefit information and determine if a change is warranted.
Just like our clients were offered different options to reduce benefits and therefore reduce their premiums, you can contact the carrier to negotiate and request additional offers from your LTCI company (also called quotes). For example, you could say, “I need to reduce my annual premium by $750. What can I get for that? What are the advantages and disadvantages?” Overall, we strongly recommend you work with an experienced LTCI agency like ours to discuss any offers provided by your insurance carrier before making a decision. The details can be deceiving, and LTCI policies have lots of variables you need to take into consideration.
Whether or not you are questioning making a policy change to your Long Term Care Insurance plan, or if your carrier sent you a letter like the ones our clients received, it’s best to have a reliable and knowledgeable LTCI agent you can trust. Gordon Associates advisors assist our clients with this when requested and can consult with non-clients about when to make changes to your Stand-Alone Long Term Care Insurance policy. For more information contact us.
To help determine if long-term care (LTC) insurance is right for you, we are offering a FREE informational guide. This is a comprehensive booklet that will answer many of your questions about LTC and assist you with your health care planning.
To help determine if long-term care (LTC) insurance is right for you, we are offering a FREE informational guide. This is a comprehensive booklet that will answer many of your questions about tax breaks and incentives for LTCI for federal and state taxes.