At age 58, I purchased LTE insurance from a reputable company. Now, as I approach age 63, I am told my premium must almost double to keep my current coverage because "premiums are not sufficient to meet the program's future." If I keep the same coverage, I must pay almost $500 a month! Or, I can reduce the future inflation % and have either a partial premium increase or maintain the current premium, depending on how much less inflation protection I choose. I am wondering whether I should keep this insurance in some reduced form or just drop it altogether and cut my losses. The reasoning for the premium increase seems ridiculous...they didn't know the plan was severely underfunded until now? And what's to prevent these companies from doing this again? If my premium almost doubles again, i'll be paying almost $1,000 a month!

Terry Says:

Please read the many responses I have written on this subject under the “insurance” category of Q&A.  You’re absolutely right — it is an insane situation, and the large insurers who wrote those policies have seen their stock punished.  I have spoken to two insurance CEOS and they say the worst of the increases is now behind us — although they do expect that there will be smaller annual increases along the way in the future.

BUT, that’s nothing compared to what’s happening to the cost of care.  And it’s expected that more than half of today’s 65 year olds will  need at least some form of custodial care before they die.  Not only could it wipe out all your assets, but if you run out of money it could force you into a state-funded nursing home.  If you live in Illinois you see what is happening to state budgets.  That is not where you want to be if you suffer a stroke or develop Alzheimer’s.

There is another alternative to paying annual premiums.  If you have cash, you could set up a plan to buy a combo policy — life and LTC — and then your premiums could not rise.  You can arrange to pay in one lump sum — or in 10 annual payments.  If you die without using the LTC benefits, your heirs get the death benefit.  And if you need cash, you could borrow it out — reducing the LTC benefit.  Here’s a link to an article I wrote recently about this new type of policy.

But don’t give up your current policy, because you may not qualify for another one!