Why Long-Term Care Insurance Premiums Increase and What to Do

If you own a traditional long-term care insurance policy, you may have already received a letter that no policyholder wants to see: a notice that your premiums are going up, sometimes dramatically. Over the past two decades, hundreds of thousands of policyholders across the country have faced rate increases ranging from 30 percent to well over 100 percent. For people who bought these policies in good faith, expecting stable premiums throughout retirement, the increases can feel like a betrayal. Understanding why these increases happen, how the approval process works, and what your options are can help you make informed decisions about your coverage going forward.

The Root Causes: Why LTC Premiums Increase

Long-term care insurance is unlike most other types of insurance. When you buy auto or homeowner's insurance, the insurer has decades of claims data to price the product accurately. But when the LTC insurance industry launched in earnest during the 1980s and 1990s, there was very little historical data to work with. Insurers were essentially guessing about how often people would file claims, how long those claims would last, and how much care would cost decades into the future. Many of those guesses turned out to be significantly wrong.

Four primary factors have driven the premium increases that policyholders are experiencing today:

1. Original Actuarial Miscalculations

When insurers first designed long-term care policies, their actuaries made assumptions about how many policyholders would eventually file claims, how long those claims would last, and what percentage of policyholders would let their policies lapse before ever needing care. These assumptions were based on limited data and, in many cases, borrowed from other insurance product lines that behaved very differently. The result was that initial premiums were set too low to cover the actual cost of future claims. Some industry critics have argued that insurers deliberately underpriced policies to gain market share, though most actuarial experts attribute the errors to genuine uncertainty rather than intentional deception.

2. Lower-Than-Expected Lapse Rates

A lapse occurs when a policyholder stops paying premiums and the policy is canceled. Insurers originally assumed that a meaningful percentage of policyholders — often 4 to 5 percent per year — would lapse their policies before filing a claim, reducing the insurer's total liability. In reality, lapse rates for LTC insurance turned out to be extraordinarily low, often less than 1 percent per year. People who bought long-term care insurance tended to be planners who understood the value of the coverage and were determined to hold onto it. This meant that far more policyholders than expected stayed on the books and eventually filed claims, dramatically increasing the insurer's payout obligations.

3. Persistently Low Interest Rates

Insurance companies collect premiums years or decades before they pay claims. During that time, they invest the premium reserves, primarily in bonds and other fixed-income securities. The investment returns earned on those reserves are a critical component of the insurer's ability to pay future claims. When LTC policies were originally priced, actuaries assumed investment returns in the range of 6 to 8 percent. Following the 2008 financial crisis, interest rates plummeted and remained near historic lows for over a decade. Even with recent rate increases, bond yields have not returned to the levels assumed in the original pricing. This persistent shortfall in investment income has been one of the largest single drivers of premium increases across the industry.

4. Higher and Longer Claims Than Projected

Advances in medical care have extended lifespans, but they have also extended the period during which people live with chronic conditions that require long-term care. Alzheimer's disease and other forms of dementia, in particular, can require care for five to ten years or longer. The cost and duration of claims have exceeded what actuaries originally projected. Additionally, the cost of professional caregiving has risen faster than general inflation, driven by labor shortages in the caregiving workforce and increasing demand from an aging population.

The State Approval Process for Rate Increases

Unlike many other financial products, long-term care insurance rate increases are not automatic. Insurers cannot simply raise your premium whenever they choose. Every rate increase must go through a regulatory approval process overseen by the state department of insurance in each state where the affected policies were sold.

The process works as follows:

1. The insurer files a rate increase request with the state insurance department, providing actuarial justification for the increase, including data on claims experience, lapse rates, and investment returns.
2. The state reviews the request, often hiring independent actuaries to evaluate the insurer's data and assumptions. This review can take months or even years.
3. The state may approve the full increase, approve a partial increase, or deny the request entirely. Some states allow large increases to be phased in over multiple years to reduce the shock to policyholders.
4. Once approved, the insurer notifies policyholders in writing, typically providing 30 to 60 days advance notice before the new premium takes effect. The notice must include information about the policyholder's options.

It is important to understand that rate increases must apply to an entire class of policyholders. An insurer cannot target you individually for a rate increase based on your age, health, or claims history. The increase is applied uniformly across all policyholders within a given policy block, meaning everyone who purchased the same type of policy in the same state during the same time period will receive the same percentage increase.

How Large Have Premium Increases Been?

The magnitude of premium increases has varied significantly by insurer, policy generation, and state. Some policyholders have been relatively fortunate, experiencing modest increases in the range of 15 to 30 percent over the life of their policy. Others have been hit much harder.

Here is a general picture of what different carrier groups have experienced:

• Genworth: One of the largest LTC insurers, Genworth has implemented multiple rounds of rate increases on older policy blocks, with some policyholders facing cumulative increases of 100 to 150 percent or more from their original premium.
• John Hancock: Stopped selling new traditional LTC policies and has imposed significant increases on existing policyholders, with some blocks seeing cumulative increases of 80 to 130 percent.
• CNA: Exited the LTC market and transferred its block of policies, with some policyholders experiencing cumulative increases exceeding 100 percent.
• Mutual of Omaha, Northwestern Mutual, and other carriers: Increases have generally been more moderate, often in the range of 30 to 60 percent cumulatively, though some policy blocks have seen higher increases.

To put this in dollar terms, consider a policyholder who purchased a policy in 2000 with an annual premium of $2,000. A cumulative 100 percent increase means that same policyholder is now paying $4,000 per year. A cumulative 150 percent increase would mean $5,000 per year. For retirees on fixed incomes, these increases represent a serious financial burden.

Your Options When Facing a Premium Increase

Receiving a premium increase notice can feel overwhelming, but you have more options than you might realize. Before making any decision, it is worth remembering that long-term care insurance is still worth it for many people even after a rate increase, because the cost of care far exceeds what most people can save on their own. Here are the most common options available to you:

Option 1: Pay the Higher Premium

If you can afford the increase without straining your budget, paying the higher premium preserves your full benefits. This makes the most sense if your benefits are robust, you have a strong inflation protection rider, and you are approaching the age where you are more likely to need care. Remember that even at the higher premium, the cost is still likely far less than paying for long-term care out of pocket. A year of nursing home care costs $131,000 or more at national averages, so even a $4,000 annual premium represents substantial leverage.

Option 2: Reduce Your Daily or Monthly Benefit

Lowering your daily benefit amount reduces your premium while maintaining other policy features like your benefit period and inflation protection. For example, if your policy provides $200 per day and you reduce it to $150 per day, you will have a lower premium and still have meaningful coverage. The insurance would cover the majority of your care costs, and you would pay the difference out of pocket. This approach works well for people who have some savings to supplement the insurance benefit.

Option 3: Reduce or Eliminate Your Inflation Rider

The inflation protection rider is often the most expensive component of a long-term care insurance policy. Switching from compound inflation protection to simple inflation protection, or eliminating the inflation rider entirely, can significantly reduce your premium. However, this is a trade-off: without inflation protection, your benefit amount stays fixed while care costs continue to rise. If you are already in your late 70s or 80s and likely to need care in the near future, eliminating inflation protection may be reasonable because there is less time for inflation to erode your benefit. For younger policyholders, this trade-off is riskier.

Option 4: Shorten Your Benefit Period

If your policy has a five-year or lifetime benefit period, reducing it to three years can lower your premium substantially. According to the Administration for Community Living, the average long-term care need is about two to three years, so a three-year benefit period still covers the typical claim. You would only be exposed to out-of-pocket costs if your care need extended beyond three years, which happens primarily in cases of dementia or other progressive conditions.

Option 5: Exercise Nonforfeiture Benefits

Many long-term care insurance policies include either a built-in nonforfeiture benefit or a contingent nonforfeiture option. A nonforfeiture benefit allows you to stop paying premiums entirely and retain a reduced paid-up benefit, typically equal to the total premiums you have paid into the policy. A contingent nonforfeiture benefit is triggered when cumulative rate increases exceed a certain percentage threshold. Under the NAIC model regulation, if your cumulative premium increase exceeds the trigger threshold for your age at issue, you can elect a paid-up policy with a shortened benefit period based on premiums already paid. This is essentially a safety net that ensures you do not walk away empty-handed after years of paying premiums.

Class-Action Lawsuits and Settlements

The wave of premium increases has predictably led to legal action. Policyholders across the country have filed class-action lawsuits against major LTC insurers, alleging that the companies knew their initial pricing was inadequate and engaged in a bait-and-switch strategy: selling policies at artificially low premiums to build market share, then raising rates once policyholders were locked in and had few alternatives.

Several of these cases have resulted in settlements. While the specific terms vary, common settlement provisions have included:

• Premium freezes or caps on future increases for a defined period
• Enhanced nonforfeiture options giving policyholders better paid-up benefit terms
• Cash refunds or premium credits for a portion of past increases
• Options to exchange existing policies for modified coverage with stabilized premiums

If you are a policyholder who has experienced significant rate increases, it is worth checking whether your carrier has been involved in any class-action settlements that may apply to your policy. Your state insurance department can provide guidance, and the NAIC maintains resources on long-term care insurance consumer protections. Even if a settlement does not fully compensate you for the increases, it may provide additional options that improve your situation.

New Generation Pricing: Is the Problem Fixed?

The long-term care insurance industry has undergone significant reform since the era of aggressive underpricing. If you are considering purchasing a new policy today, the pricing landscape is substantially different from what existed in the 1990s and early 2000s. For a comparison of today's top-rated carriers, see our guide to the best long-term care insurance companies.

Key improvements in new generation pricing include:

• More conservative actuarial assumptions: Insurers now assume much lower lapse rates (close to the actual 1 percent), lower investment returns, and higher claims utilization when pricing new policies.
• Stricter state regulatory standards: Many states have adopted pricing standards that require insurers to demonstrate a higher level of confidence that initial premiums will be sufficient to cover claims without future increases. Some states require actuarial certification that the pricing is adequate with a very low probability of needing future increases.
• Rate stability provisions: Some carriers now build in rate stability reserves or offer premium rate guarantee periods to provide additional protection against future increases.
• Decades of real-world claims data: Unlike the early days of the industry, actuaries now have 30-plus years of actual LTC claims experience to draw on when pricing new products, leading to much more accurate projections.

The result is that new policies sold today are priced more realistically from the start. Premiums are higher than what was charged in the 1990s, but they are far more likely to remain stable over time. While no insurer can guarantee that premiums on a traditional policy will never increase, the risk of significant increases on new generation policies is substantially lower than it was for older policy blocks.

Hybrid Policies: A Premium-Stable Alternative

For people who want long-term care coverage without the risk of premium increases, hybrid long-term care and life insurance policies have emerged as an increasingly popular alternative. Hybrid policies combine a life insurance policy or an annuity with a long-term care benefit rider, and they address the two biggest concerns people have about traditional LTC insurance: premium increases and the possibility of paying premiums for years and never using the benefit.

Hybrid policies offer several key advantages in the context of premium stability:

• Fixed premiums guaranteed not to increase: Whether you pay a single lump sum or a series of fixed payments over ten years, the premium is locked in contractually.
• Death benefit if LTC is never needed: If you never need long-term care, your beneficiaries receive a tax-free death benefit, so your premiums are never wasted.
• Return of premium option: Many hybrid policies allow you to surrender the policy and receive a full or partial return of your premiums if you change your mind.
• LTC benefit multiplier: Typical hybrid policies provide a long-term care benefit pool that is two to three times the death benefit, giving you substantial coverage for extended care needs.

The trade-off with hybrid policies is cost. They generally require a larger financial commitment upfront, often $50,000 to $200,000 in a lump sum or $5,000 to $20,000 per year over ten years. For people who have the financial resources, however, the guaranteed premium stability and dual benefit structure make hybrids an attractive option. For a broader look at all your options, read our guide to alternatives to long-term care insurance.

Should You Keep Your Policy After a Rate Increase?

This is the critical question that every policyholder facing a rate increase must answer. The decision depends on several factors specific to your situation:

• Your current age and health: The older you are, the more likely you are to need care soon, and the harder it would be to qualify for a new policy. Dropping your existing coverage when you are in your 70s or 80s is extremely risky because you almost certainly cannot replace it.
• Your financial resources: If you have accumulated substantial assets since purchasing the policy, you may be able to self-insure for a portion of your care costs and reduce your policy benefits accordingly. If your finances are tighter, the policy may be even more important to keep.
• Total premiums already paid: If you have paid premiums for 15 or 20 years, walking away means forfeiting all of that investment unless you have a nonforfeiture benefit. The longer you have been paying, the more you have at stake if you cancel.
• The quality of your existing policy: Many older policies have more generous terms than what is available today, including compound inflation protection at 5 percent, lifetime benefit periods, and broad benefit triggers. Even with a rate increase, your older policy may provide better value than anything you could buy today.

In most cases, financial advisors recommend keeping your policy in some form rather than canceling it outright. The combination of your age, health, and the premiums you have already invested generally makes it more financially sound to adjust your benefits downward than to walk away entirely. Canceling should be a last resort, and only after exploring all available options including nonforfeiture benefits.

The Bottom Line

Long-term care insurance premium increases are a real and frustrating problem that has affected hundreds of thousands of policyholders. The causes are well understood: insurers underpriced policies in the early years of the industry, policyholders held onto their coverage at much higher rates than expected, low interest rates eroded investment returns, and claims have been more frequent and more expensive than projected. The good news is that the industry has learned from these mistakes, and new generation policies are priced far more conservatively than their predecessors.

If you are facing a rate increase on an existing policy, resist the urge to cancel in frustration. Explore your options: paying the increase, reducing benefits, shortening the benefit period, adjusting your inflation rider, or exercising nonforfeiture provisions. Each of these approaches allows you to maintain some level of coverage that could prove invaluable when you need care.

If you are shopping for a new policy, consider a hybrid life insurance and long-term care policy for guaranteed premium stability, or look at the newer generation of traditional policies that benefit from decades of real claims data and stricter regulatory oversight. Whichever path you choose, having a plan for long-term care remains one of the most important financial decisions you can make for your retirement.