Why LTC Insurance Rates Increase
If you've received a rate increase notice on your LTC policy, you're not alone. Many policyholders have experienced increases, some substantial. Understanding why helps you make informed decisions about your options.
Underestimated Claims
Early policies were priced based on limited data. Actual claims have been higher than projected—more people use benefits, for longer periods.
Lower Lapse Rates
Insurers assumed many people would drop coverage before claiming. Actual lapses are much lower—policyholders keep their coverage.
Low Interest Rates
Insurers invest premiums to fund future claims. Years of low interest rates reduced investment returns, creating funding gaps.
Increased Longevity
People are living longer, which means longer potential care needs and more years of benefit payments.
Rising Care Costs
Care costs have risen faster than general inflation, increasing the real cost of claims beyond original projections.
Better Medical Care
Advances in medicine mean people survive conditions that once were fatal, but may need extended care.
It's a Class-Wide Issue
How Rate Increases Work
Rate increases on LTC policies aren't arbitrary—they follow a regulated process:
The Rate Increase Process
Carrier files request with state
The insurance company must submit detailed actuarial justification to each state's insurance department.
State reviews and may modify
Regulators evaluate the request. They may approve as filed, approve a smaller increase, or deny it.
Policyholders notified
You receive written notice (typically 30-60 days in advance) explaining the increase and your options.
Increase takes effect
Unless you choose a benefit reduction option, the new premium applies to your next billing cycle.
Typical Increase Amounts
Increases vary widely by carrier and policy vintage, but here's what's common:
Note: Some policies have experienced multiple increases over time, compounding the total premium growth since purchase.
Your Options When Facing an Increase
When you receive a rate increase notice, you typically have several options:
Option 1: Pay the Increase
Accept the higher premium and maintain your full coverage exactly as it is.
Impact
Higher monthly/annual cost, but full benefits preserved
Best for
Those who can afford it and want maximum protection
Option 2: Reduce Daily Benefit
Lower your daily or monthly benefit amount to offset the premium increase.
Impact
Same premium, but less coverage per day of care
Best for
Those on fixed budgets who prefer lower daily coverage
Option 3: Shorten Benefit Period
Reduce how long benefits last (e.g., from 5 years to 3 years) to maintain current premium.
Impact
Same premium, but coverage ends sooner
Best for
Those who prefer higher daily benefits for shorter duration
Option 4: Reduce or Remove Inflation Protection
Switch from compound to simple inflation, or remove inflation protection entirely.
Impact
Can significantly reduce premium, but benefits won't grow as much
Best for
Older policyholders closer to potential need
Option 5: Accept Paid-Up Policy
Stop paying premiums and accept a reduced, paid-up policy based on premiums already paid.
Impact
No more premiums, but significantly reduced benefits
Best for
Those who can't afford continued premiums but want some coverage
Don't Let Your Policy Lapse
Making the Decision
Use these questions to guide your decision:
Can you comfortably afford the increased premium?
YES →
Consider paying increase to maintain full coverage
NO →
Explore benefit reduction options
Are you within 10 years of likely needing care?
YES →
Prioritize daily benefit over benefit period
NO →
Consider reducing inflation protection first
Is this your only source of LTC protection?
YES →
Be more cautious about reductions
NO →
May have more flexibility to adjust
Do you have significant assets to protect?
YES →
Maintaining coverage is more valuable
NO →
Weigh cost vs. benefit more carefully
The Math to Consider
Before reducing coverage significantly, calculate what you've invested and what you'd give up:
- •Total premiums paid to date: What you've already invested in this coverage
- •Current benefit pool: What the policy would pay if you needed care today
- •Projected benefit pool: What it will be worth when you're likely to need it
- •Cost of alternatives: What new coverage would cost at your current age/health
Avoiding Future Rate Increases
If you're shopping for new coverage or helping family members, here's how to minimize rate increase risk:
| Factor | Traditional LTC | Hybrid LTC |
|---|---|---|
| Premium guarantee | No—can increase | Yes—contractually guaranteed |
| Rate increase risk | Moderate to high on older policies | None |
| Initial premium | Lower annual premium | Higher (often single premium) |
| If never used | Premiums not recovered | Death benefit or cash value |
| Carrier selection | Choose carriers with good rate history | Premium guarantee regardless of carrier |
The Hybrid Advantage
When to Keep Full Coverage vs. When to Reduce
Every situation is different. Here are some scenarios to help guide your thinking:
Keep full coverage
You're 75, have $800K in assets, and the increase brings your premium to $7,000/year—less than 1% of your assets annually.
Recommendation
Pay the increase
The coverage protects significant assets. The premium is affordable relative to what's at stake.
Reduce benefit period
You're 68, healthy, have a 5-year benefit period, and facing a 40% increase you can't fully absorb.
Recommendation
Reduce to 3-year period
Average care need is 3 years. You preserve daily benefit and inflation protection where it matters most.
Reduce inflation protection
You're 78 with 5% compound inflation protection. Your benefits have already grown substantially.
Recommendation
Consider reducing to 3% or simple inflation
At your age, benefits have less time to grow. Current benefit level may be adequate.
Accept paid-up policy
You're 82, facing a 60% increase, and the premium would strain your budget significantly.
Recommendation
Consider paid-up option
Some coverage is better than none, and you preserve your financial stability.
You're Not Alone
Rate increases are frustrating, but you have options. Take time to understand your choices, crunch the numbers, and make the decision that's right for your situation. If you need help evaluating your options, a consultation can provide clarity.
Frequently Asked Questions
About the Author
Brian Thompson
LTC Insurance Specialist
Brian has spent over 30 years helping families navigate long-term care planning. As an independent broker licensed in 48 states, he specializes in asset-based LTC strategies that keep your money working for you—no matter what happens.