Why Did My Long-Term Care Insurance Premium Go Up? Your Options, Explained Simply

A while back a couple from Warner Robins sat down with me holding a letter from their long-term care insurance company. The premium they had faithfully paid for fifteen years was going up 40 percent, and they wanted to know two things. Is this even legal, and what do we do now? The short version was "Yes it's legal, and you have more options than the letter makes it sound like."

Why did my long-term care insurance premium go up?

It went up because traditional long-term care insurance was built with a door left open. These policies are what the industry calls "guaranteed renewable." The company cannot cancel your policy and cannot raise your rate because you aged, got sick, or filed a claim. What it can do, with your state insurance department's approval, is raise premiums on an entire class of similar policies at once.

This is exactly what has been happening across the industry. When insurers priced these policies decades ago, they guessed wrong on almost everything. Things like how many people would keep their policies, how long people would live, how much care would cost, and what interest rates would do. It's like if a restaurant sold lifetime meal vouchers in 1995 based on 1995 grocery prices. The math just won't work 20 or 30 years later. In the traditional long-term care insurance industry, policyholders are getting the correction notices. Some increases run 40 to 60 percent or more, and some policyholders have seen cumulative increases of 150 to 250 percent over the life of a policy.

This, in a nutshell, is why we do not use traditional long-term care insurance at Crossroads Financial. A premium that can climb on someone living on a fixed income is a problem waiting on a mailbox.

What are my options when I get a rate increase letter?

You have four doors, and the letter usually only describes two of them well. Insurers offer ways to soften or avoid the increase, and here is how they shake out:

Door One — pay the higher premium and keep every benefit you have. Roughly 50 to 60 percent of policyholders choose this, and if it still fits your budget, it is often still valuable coverage.

Door Two — trim the benefits to hold your premium near where it was. You can reduce the daily benefit, shorten the benefit period, or dial down the inflation growth option. For someone whose benefit has already grown for fifteen years, easing off the inflation rider can be a sensible haircut instead of a scalping.

Door Three — stop paying and take a paid-up policy. In most situations you receive a policy with benefits roughly equal to the total premiums you have paid in. If you have paid $30,000 over the years, you keep about $30,000 of future benefits. Not huge, but far better than nothing.

Door Four — replace the coverage with something guaranteed, which we will get to in a second.

The one thing I beg you not to do is simply quit paying in frustration. Someone turning 65 today has almost a 70 percent chance of needing some long-term care, and with a Georgia nursing home semi-private room running about $105,850 a year in the 2024 cost of care survey, Medicare is not coming to the rescue. We spoke at length about this in our post Does Medicare Cover Long-Term Care?

In short, walking away without checking the paid-up option is leaving money on the table.

Is there long-term care coverage that cannot raise my rates?

Yes, and this is where planning gets a lot calmer. Hybrid life insurance with long-term care benefits and linked-benefit policies typically come with fixed premiums that are locked in by contract, so the number you agree to on day one is the number for life. If you never need care, your family receives a life insurance benefit instead, so the money does a job either way. Thanks to the Pension Protection Act, qualified policies pay long-term care benefits tax free.

There are also annuities with long-term care benefits, which often use more lenient medical underwriting than traditional policies. For people here in Perry, Warner Robins, and Macon who have been turned down for coverage or worry their health history disqualifies them, that door is frequently still open. We walk through all of these tools in our guide on how to pay for long-term care and on our long-term care planning page.

Frequently asked questions

Can my insurance company cancel my long-term care policy?

No. As long as you pay the premium, the company cannot cancel you or raise your individual rate because of your age, health, or claims. Increases only happen class wide with state approval.

What is a paid-up policy?

It is the option to stop paying premiums and keep a smaller policy, with benefits roughly equal to what you have paid in over the years. It is the safety net most rate increase letters undersell.

Can I move my old policy or annuity into a hybrid without a tax hit?

It's a definite "Maybe." The only way to know for sure is to review that policy, which is something I commonly do absolutely free of charge. If your policy is eligible to transfer, we can initiate a 1035 exchange, which can move value from an existing life insurance policy or annuity into one with long-term care benefits without triggering taxes. As I said before, the details matter, and are worth reviewing with someone who does this daily, and I just happen to know a guy.

That rate increase letter is stressful, but it is not a dead end; it is a fork in the road, and around here we know a thing or two about crossroads. If you would like a second set of eyes on your letter and your options, that is exactly the kind of conversation I love to have. No pressure, no jargon, just a plan that will not surprise you in the mailbox.

This article is for education only and is not a recommendation of any specific product. Guarantees are backed by the claims-paying ability of the issuing insurance company.