Ben Jennings, Lead Advisor and Director of Planning Research

With the (anticipated) entrance of the Washington Cares Fund, more and more of our clients are becoming acquainted with insurance for long-term care (LTC) needs. While LTC policies are - in theory - designed to have stable premiums, if you have had an LTC policy in place for a while, the odds are good you have seen premium increases.

If you receive such a premium increase letter, you will also typically be given some options to reduce the premium increase by changing the policy benefits. There are three primary levers which might be adjusted:

• The maximum daily or monthly benefit

• The minimum benefit period

• The growth in the benefit over time

Sometimes this presents a nice opportunity to re-shape the policy benefits in response to personal or other changes since the policy was taken out. At other times this is a temptation to eliminate needed coverage (or attractive benefits in older policies that aren’t even offered today) to save a few dollars. While making these decisions, we look at factors like these:

1. Fresh Eyes. How would we design this policy now if we had a blank slate?

2. Reality Check. How does the current periodic benefit compare to current costs in the geographic region in which care might be received?

3. Cost Structure. If LTC was needed, would it add substantially to household expenses (common earlier in life), or would those costs take the place of other expenses (more typical in later life)? The answer may be different now than it was when the policy was taken out.

4. Other Resources. We may now have more (or less) confidence the client’s other resources could adequately cover LTC costs.

Of course, in addition to benefit design, we must evaluate affordability, and whether the proposed premiums still represent a good trade-off between managing the risks of long-term care and the client’s other goals.

Finally, we need to ask - assuming we might want to downgrade the coverage to save premium dollars - is now the right time to do so? Once done, we will never again have the opportunity to restore benefits to the level they are at now, so we must keep in mind a downgrade is a one-way option, which cannot be reversed. It is also frequently possible to ask the company to downgrade policy benefits in the future, even if premium increases are not occurring at the time.

This question is a subset of the broader risk-management area. We look at risks like this and ask, “How likely is this to happen?” (prevalence) and “How bad could it be if it did occur?” (consequences). We are glad to serve as your guide through this kind of thought process, if (or when!) the need arises.