Your LTC Insurance Premium Just Went Up 40%. Now What?

A framework for responding to a long-term care insurance rate hike — without someone who earns a commission on what you decide.

Why premiums are rising (the short version)

Long-term care insurers made three pricing errors in the 1990s and 2000s:

1. Underestimated longevity. People live longer than actuaries projected — meaning more claim years per policyholder.
2. Underestimated claim severity. Care costs and duration of stay exceeded models.
3. Overestimated lapse rates. Healthy people don't cancel LTC insurance; only sick people do. The "lapse-supported" pricing assumptions collapsed.

State insurance regulators allowed retrospective rate increases under actuarial necessity filings. The increases are real, ongoing, and not finished. If you have a pre-2010 policy from a major carrier, expect more increases.

Your 4 options when a premium notice arrives

Option 1: Pay the increased premium

Appropriate when: the policy has strong benefit design (3%+ compound inflation protection, unlimited benefit period or 5+ years, strong carrier rating) and the new premium is still a reasonable fraction of your income.

Math to run: Total premiums paid to date + projected future premiums vs. likely benefit payout. If you bought in your 50s with compound inflation protection and a 3-year benefit, a $1,500/mo benefit today might be worth $3,000+/mo by the time you need it. That's the bet.

Watch out for: Carrier financial health. Genworth Life Insurance Company has been under rehabilitation proceedings and has limited new rate authority in some states. John Hancock has stopped selling new LTC policies. Rating downgrades signal continued pressure — check AM Best and Moody's before committing to decades more of premiums.

Option 2: Reduce benefits to hold the old premium

Most policies allow you to reduce benefits to avoid paying the higher premium. Common reduction options:

• Shorten benefit period (e.g., unlimited → 3 years, or 5 years → 3 years)
• Reduce daily/monthly benefit amount
• Eliminate or reduce inflation protection (3% compound → 0%)
• Reduce elimination period benefit (30 days → 90 days)

The trap: Eliminating inflation protection is the most common mistake. A $200/day benefit today covers a semiprivate nursing room in rural Iowa; it covers 45 minutes of home care in San Francisco. Without inflation protection, your real benefit erodes 3–5% per year — potentially halving coverage by the time you need it.

Better approach: Shorten the benefit period before stripping inflation. A 2-year benefit with compound inflation protection beats a 5-year benefit with no inflation at typical care durations (median: ~3 years need, but ~2 years of paid care after self-funded initial period).

Option 3: 1035 exchange into a hybrid LTC+life product

If you have significant cash value in a life insurance policy or a non-qualified annuity, a 1035 tax-free exchange can fund a hybrid life+LTC product without new out-of-pocket cost. This option is not available if you're relying on paying ongoing premiums to fund the exchange.

Products to know:

• Lincoln MoneyGuard III: Fixed premium, LTC acceleration off permanent death benefit, full return-of-premium guarantee.
• Nationwide CareMatters II: Pure LTC focus with indemnity benefits (no per-service receipts needed).
• Securian SecureCare: Strong inflation option with joint coverage riders.

The honest trade-off: Hybrids cost more per dollar of LTC benefit than traditional LTC insurance did at original pricing. They cost the same or less than traditional at today's inflated premiums, with more certainty. The premium doesn't increase. But you give up flexibility — the lump sum is committed.

The conflict-of-interest problem: Insurance agents earn 80–100%+ first-year commissions on hybrid LTC products. They have a strong financial incentive to recommend exchange even when it's wrong for you. A fee-only advisor can model whether the exchange math makes sense for your balance sheet.

Option 4: Drop the policy (paid-up nonforfeiture or lapse)

When the policy no longer makes economic sense and self-funding is viable.

Before lapsing, check if your policy has a nonforfeiture benefit — typically a paid-up policy with reduced benefit for all premiums paid. Many older policies include this. It means you can stop paying and retain a smaller benefit rather than forfeiting everything. Read your declarations page or call the carrier's policy services line (not sales).

Self-funding is a real option if: you have $1.5M+ investable, are committed to ring-fencing $750K–$1M as an LTC reserve, and have coordinated this with your estate and income plan. If you bought the policy 20 years ago when your assets were smaller, your situation may have changed enough that the insurance is now overcoverage.

The evaluation framework: 6 questions to answer before deciding

1. What is the current benefit value? Daily benefit × inflation adjustment to today. What would this actually cover in your likely care state?
2. What is the carrier's AM Best rating? A-minus or below on a legacy LTC block deserves scrutiny.
3. What are your current investable assets? At $2M+, self-funding becomes increasingly rational. At $600K, you can't afford to self-fund an extended stay.
4. What is your health status? If you've had serious health events since purchase, the policy is now more valuable — dropping it may be very costly in expected-value terms. Conversely, if you're in excellent health, you have more flexibility.
5. What does your spouse/partner need? Spousal planning is asymmetric: women have longer average LTC durations. If one spouse self-funds and the other insures, which is which matters.
6. How does this interact with your estate and tax plan? Hybrids, 1035 exchanges, and self-funding all have different implications for estate transfer, Medicaid look-back, and income tax on policy benefits.

What a fee-only advisor models that your insurance agent won't

An insurance agent evaluating your rate-hike options has one product category to sell. A fee-only financial advisor models:

• Self-fund breakeven: At your asset level, what's the probability that an extended-care event destroys the portfolio vs. the premium cost?
• Carrier stress scenario: If your carrier faces insolvency, what happens to your claim? (State guaranty associations cover $100K–$300K of LTC benefits — usually less than a 3-year claim.)
• Tax-adjusted exchange analysis: Whether a 1035 exchange makes sense depends on basis, gain, and the alternative uses of that capital.
• Medicaid coordination: If a long stay is possible and assets are borderline, Medicaid planning may be a component of the decision — something an insurance agent has no framework for.