Supporting aging parents comes with both emotional and financial complications, particularly when it comes to long-term care insurance. This essential coverage helps cover costs not typically included in standard health insurance or Medicare, such as nursing home stays or in-home support. However, the cost of this insurance can be a significant challenge, especially when faced with unexpected premium increases.
I personally know the challenges firsthand, having purchased long-term care policies for both my parents back in 2000. For my dad, who was 68 at the time, I selected simple inflation protection that accrues interest only on the original benefit. By the time he needed in-home care starting in 2014, his daily benefit had grown from $125 to $212.50 due to this type of coverage.
On the other hand, my mom purchased her policy when she was a young 54 years old and we opted for compound inflation protection. The cost of that option is higher than simple inflation because it earns interest on itself in addition to accruing regular interest. As a result, by now her daily benefit has increased from $125 to $403 due to the faster rate at which this type of coverage grows.
However, with compound inflation protection comes an increase in costs as well. Since 2000, my mom’s long-term care insurance premium has jumped by a significant 54%, from $1,224 to $1,885 per year. Along the way we have experienced three rate increases, and it’s not uncommon for rates to increase significantly over time, particularly after ten years or more of having had the policy in place.
When faced with a significant premium increase like this, many people feel overwhelmed and trapped between financial security and compromising their parents’ quality of life and access to care. However, there are options that don’t result in an all-or-nothing choice. Here are three ways I recommend clients navigate rate increases:
1) Accept the premium increase – If your or your parent’s financial situation allows them to comfortably absorb higher rates without sacrificing any benefits, accepting a significant premium increase can ensure continuous coverage and prevent compromising care quality. This was the best choice for my mother’s situation despite her 54% rate hike because I know firsthand how expensive in-home care can be after having cared for my father who had Parkinson’s disease during his last four months of life when he required around the clock nursing services costing up to $30,000 per month.
2) Freeze benefits – If you have financial concerns about a premium increase, explore freezing policy benefits instead by agreeing forgo further increases in inflation protection coverage while paying a lower rate for that duration until you’re ready and able to accept the higher costs again or when your parent’s age warrants such changes. This is particularly useful if your parents are over 80 years old, as premium spikes can exceed 20% at this stage in life which could be too much of a burden for some families.
3) Negotiate rates – If you’re unable to accept the full rate increase but aren’t yet ready to freeze benefits entirely, discuss it with your insurer and explore alternatives that an adjusted premium might offer such as shorter benefit periods or longer elimination periods (the time before insurance coverage begins). However, reducing daily benefits should be a last resort because this would decrease overall payouts from the policy while increasing out-of-pocket costs for care.
Ultimately, it’s essential to have transparent conversations with your parents and siblings about everyone’s perspectives and financial considerations when deciding which path is best. It can also be helpful to seek guidance from a certified financial planner who will provide clarity and insight on the specific situation at hand while suggesting alternatives that might not initially come to mind during such complex discussions involving aging parents.
Leave a Reply