LTCi policyholders face difficult decisions over premium hikes

By Susan Rupe

Faced with rate increases, many long-term care insurance policyholders are confronted with difficult decisions. Do they bite the bullet and pay more for their LTCi coverage? Do they opt to reduce their benefits in an attempt to save money? Or do they choose to stop paying on their policies altogether?

The Center for Insurance Policy and Research delved into that issue and presented some of its findings to the National Association of Insurance Commissioners Senior Issues (B) Task Force.

The center conducted a survey of 1,100 individuals, all of whom are over age 55, said Jeff Czajkowski, CIPR director. Those surveyed were asked to imagine that they are 80 years old and are informed of a rate increase in their LTCi premium. One group of respondents was given a letter that follows state insurance department communications principles and the other group received a letter that did not.

Of those surveyed, the highest percentage (28%) said they would pay the increase, said Brenda Cude of the University of Georgia, who worked with CIPR on the survey. One-quarter of respondents said they would reduce their daily or monthly benefit, while 16% would exercise their contingent nonforfeiture benefit, a built-in consumer protection that allows policyholders to receive partial benefits if they can't afford a premium increase.

Thirteen percent of respondents said they would reduce the inflation protection provision in their policy, 11% would shorten the benefit period and 6% would increase the elimination period.

Reasons to accept a premium increase

Cude said participants were more likely to accept the premium increase if:

They already had been asked to assume a prior rate increase.
They thought the letter was clear.
They thought they would need long-term care in the future.
They had more positive attitudes about their choices.
They thought they had more behavioral control over their LTCi choices.

Female participants were less likely to accept the rate increase than male participants were.

Cude said CIPR conducted previous research about LTCi rate increases with financial professionals. The research focused on client experiences with rate increases and reduced benefit options.

Financial professionals said that clients understand the rate increases but don’t understand the repercussions of the reduced benefit options they choose. In addition, financial professionals said that the premium increase notices create undue stress and a false sense of urgency among policyholders.

Policyholders aren’t prepared to receive premium increase notices, the financial professionals said, and the options often are presented out of context.

“Clients are confused and angry when they get these notices,” Cude said. “People buy this policy to provide financial security later in life. Now the thing they bought to give them security is bringing them insecurity.”

Cude said regulators can continue to improve the checklist for premium increase communications by requiring such communications to contain simpler language and tables that clearly illustrate the impact of choices on premiums.

Regulators also could provide more education and information about making choices, including explaining rate increases and helping policyholders assess their options.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at srupe@insurancenewsnet.com.