Premiums subject to increases for Long-Term Care Insurance

DALLAS _ Charles and Carolyn Hunt were proud of themselves when they bought long-term care insurance policies in 2000. The Dallas couple, who are in their 70s, thought they had found an affordable way to cover the high cost of nursing care if they someday needed it.

Three hefty premium increases later, they're having their doubts.

AIG Life Insurance recently notified the couple that the new monthly premium on each of their policies will be $382 _ 70 percent more than the $223 a month they each paid when they first purchased the long-term care insurance.

"We bought the insurance because we didn't want to be anyone's burden, but we never believed the premiums would go up so much," Carolyn Hunt said. "My husband's initial reaction to the latest increase was to say we should cancel our policies."

Though long-term care insurance is designed to be relatively stable in price, insurers have raised premiums on their older policies, often by double-digit percentages. That has squeezed policyholders living on fixed incomes.

"People who had thought they bought themselves some peace of mind now worry that they won't be able to afford the premiums," said Deeia Beck of Texas' Office of Public Insurance Counsel, a state agency that advocates for consumers.

Premiums on individuals' long-term care policies can't be raised because of someone's age or declining health, but insurers can seek general rate increases on current policies if claims substantially exceed expectations, she explained.

So far in 2009, the Texas Department of Insurance said it has reviewed rate increase filings ranging from 10 percent to 48 percent from nine companies and has pending filings ranging from 15 percent to 60 percent from 10 companies.

Even the industry's largest companies, including Genworth Financial, John Hancock and MetLife, have raised premiums on certain groups of policyholders in the past couple of years. The increases are from 8 percent to 14 percent.

Many companies underpriced the policies they sold before 2000 because they overestimated the number of policyholders who would terminate their coverage, said the American Association for Long-Term Care Insurance.

"The long-term care insurance industry is still young, and companies didn't have good enough data 10 years ago when calculating premiums," said Jesse Slome, the trade group's director. "Experience has compelled them to raise rates."

The financial crisis has also exacerbated the industry's miscalculations.

Industry experts expect that newer long-term care policies will carry more stable premiums, since companies now have more experience in figuring rates and states have adopted more stringent standards on premiums.

Nancy Gordon, a long-term care specialist at Stevens Financial Group in Dallas, said she works closely with clients to make sure they don't simply drop their policies when they receive notices of higher premiums.

For clients who say their tight budgets can't accommodate a premium increase, the insurance broker often recommends scaling back benefits to keep the monthly payments about the same.

In the Hunts' case, Gordon suggested shrinking their benefit period from lifetime coverage to five years of nursing care. By doing so, the couple would lower their monthly premiums to $286.

Unless someone has a family history of dementia or chronic illness, a policy that pays benefits over three years to five years is a safe choice, said Beth Ludden, a senior vice president for Genworth's long-term care insurance.

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On the other hand, Gordon said, she usually advises against cutting the daily or monthly benefit or dropping the inflation protection, since those reductions could leave policyholders short of what they'll need for their care.

Senior care is already expensive, she said. A private room in a nursing home costs $203 a day nationally, according to Genworth's 2009 price survey. Assisted living costs $2,825 a month nationally.

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As frustrated as some consumers may be about premium increases, switching insurers rarely saves money, especially if the policyholders have had their coverage for a while, said Cathy Flanagan, a partner in Long Term Care Financial Partners in Dallas.

"Replacing an older policy with a newer one will mean higher, not lower, rates because you're older and current policies cost more," she said. "And if your health has deteriorated, you may not be insurable anymore."

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Policyholders battered by premium increases should check whether they're eligible for "contingent nonforfeiture benefits," said Jerry Cavalier, president of the Prime of Life insurance agency in Dallas.

"If you can't pay your premiums anymore, you can at least get benefits equal to what you've already put into the policy," he explained. "You won't get as much from your insurance, but it's better than walking away."

The cumulative premium increases must exceed certain percentages for policyholders to qualify, Cavalier said. For example, the increases must total more than 70 percent over a policy's life for a client who bought coverage at 60.

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Consumers now shopping for long-term care policies can reduce the risk of steep rate increases by choosing insurers that A.M. Best, Moody's and Standard & Poor's have rated as the most financially secure, said insurance broker Robert Menter of Dallas.

Prospective buyers should also look at an insurer's history of premium increases, said Genworth's Ludden.