The Tax Deductibility of Long-Term Care Insurance Premiums
Premiums for "qualified" long-term care insurance policies are tax deductible to the extent that they, along with other unrei...Read more
Jim McDevitt, a resident of Lexington, Mass., wanted to preserve some money for his children and not have his assets eaten up by long-term care costs, so 12 years ago he purchased a long-term care insurance policy. But over the past 12 years his premiums have risen 140 percent, including a 49 percent increase in premiums this year, making it more difficult to keep paying for the policy.
As nursing home costs keep rising, so do worries about how to pay for a nursing home stay. Long-term care insurance can be the best solution to pay for these long-term care costs. Insurance agents encourage seniors to buy the insurance early to lock in low premiums. The younger you are when you purchase the insurance, the cheaper the premiums. However, many people who purchase the insurance aren't aware that the premiums can rise significantly. McDevitt does not remember discussing premium increases with his insurance agent.
While most policies are "guaranteed renewable," this just means that insurance companies cannot increase your long-term care premiums based on your health or your claims. It does not mean, however, that premiums will never increase. Premiums can be increased for a whole class of policyholders. For example, an insurer can raise premiums on everyone who bought a particular type of policy or all insured individuals age 80 and older. McDevitt started out paying $632.72 per quarter. His premiums have increased annually and he is now paying $1515.15 per quarter.
The insurance company must get approval for a rate hike from the state in which the policy was sold, but most states approve these increases. A 2002 report by the AARP's Public Policy Institute found that states do not have mechanisms in place to adequately regulate long-term care insurance premiums. According to the report, most states do not gather all the information necessary for a comprehensive review of the factors that affect premiums.
Travelers Life and Annuity, which owns McDevitt's policy, did not respond to repeated requests for comment on the rate increase, but rate hikes are not uncommon with long-term care insurance policies. According to the AARP, in 2004, most insurers asked for and got big premium increases. Only three of the big ten insurers didn't have significant rate increases.
McDevitt, now age 85, has already put around $40,000 into the policy, so he plans to keep it. Someone with lesser resources may have had to drop the policy and lose all that money. While long-term care insurance may still be a good way to preserve assets and pay for nursing home costs, buyers need to take possible premium increases into account when calculating whether they can afford the insurance.
For more on long-term care insurance, click here.
For the AARP report on long-term care insurance rates, click here.
For a Consumer Reports investigation of long-term care insurance, click here.