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Long-term-care premiums set to soar

The Wall Street Journal reports that several large providers of long-term-care insurance policies have sought permission from state regulators to raise premiums on existing policyholders by 10%-40%. Some of these companies stopped selling new policies several years ago, recognizing that the numbers just weren't adding up.

Now, regulators are in the uncomfortable situation of trying to arbitrate between the lesser of two evils: raising premiums on strapped policyholders, or taking the risk that inadequate premiums are going to leave insurers without the means to pay claims decades down the road.

For those stuck with a large premium increase, the article advises against canceling the policy:

Faced with steep rate increases, many people will want to drop their coverage. But that step is "usually one of the worst things policyholders can do," says Gary Cotter, a financial planner at Cotter Financial LLC in Sun City Center, Fla. After all, those who walk away from a policy "have paid all this money and get nothing back."

In deciding the best course of action, you should first consider factors including your financial resources, age, health and need for other forms of insurance coverage. If you want to retain your current level of coverage but are too strapped to pay a higher premium, some advisers recommend asking one or more heirs to help out. Each heir can give any one person up to $13,000 this year free of gift tax.

Policyholders can ask their carrier to modify their coverage to bring premiums down. For example, carriers may allow policyholders to reduce the daily or monthly costs covered by policies — say, to $150 a day from $200. Or, they can expand the "elimination period," the number of days the policyholder must pick up the tab before benefits kick in — say, to 90 days from 30 days.

It's often uncomfortable for families to talk openly about financial issues, but this is one case where it really can make a big difference. It's probably not doing your kids a favor to cancel a policy that would help with your future care, if they're likely going to try to provide that care in the absence of the policy. It's at least worth discussing together first.

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