Will My Long-Term Care Premiums Go Up As I Get Older?

 Long-term care premiums do not work the way your automobile insurance does. Just because you are getting older or are diagnosed with an illness does not mean your long-term care premiums will go up.

In fact, your premiums can't go up just for you. Long-term care premiums can only go up for an entire class of insureds and only after the insurer can prove to the various state insurance regulators that their claims for a specific class have varied significantly from actuarial expectations. In other words, if they raise premiums, it must be for cause and for an entire class of similar policyholders, not just you.

So, there is the possibility your premiums may go up, over the very long time period you would expect to own a long-term care policy. In fact, it is not unlikely that they will go up. But you wouldn't expect them to go up every year, like a health insurance policy might. On the other hand, they may never go up. You never know. It just depends on the claims.

Obviously, no one wants to pay more. The good news is there are a few things you can do to try to limit the chances of an increase in your long-term care premiums. The biggest is to purchase your policy from an insurer that is financially strong and has a large risk pool.

There are three primary ratings companies that evaluate the financial strength of insurers. They are AM Best, Moody's and Standard and Poor. The ratings issued by the ratings agency are important because they indicate the insurers ability to pay claims. Financial strength also allows an insurer to absorb more variance in claims experience than a firm with a weaker financial position.

The other issue is the size of the risk pool. In other words, how many people is that insurer insuring for long-term care? When it comes to avoiding premium increases, more is probably better. That is because insurers rely on something called the Law of Large Numbers.

The Law of Large Numbers says the larger the sample size, the less variation there is likely to be from the theoretical expectation. It is that theoretical expectation that your premium was originally based on, so all things remaining equal, a larger risk pool will tend reduce the chances of a premium increase.

Just to give you an idea, in 2007, according to a survey done by Business Insurance magazine, Genworth, the largest long-term care insurer, had 1,078,154 total long-term care policyholders. MetLife, the second largest, had 693,373. By the time you get down to number 10, there were only 30 thousand policyholders.

Remember that just because an insurer has a big brand name, or a big presence in your local area, doesn't mean they are big in long-term care. An insurer could offer you a great policy, at a very reasonable price - maybe even cheaper than anyone else - but because they are only insuring you and your two neighbors, when Joe down the street has a stroke, all three of you are likely going to experience a huge increase because ... you ARE the risk pool.

This is an exaggeration, of course. But you get the idea ...

That insurer may be the absolute best choice for your car or tractor or even your life insurance, but not necessarily for your long-term care insurance. Don't just rely on a brand name or the agent down the street. Do your homework.