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How to cut a long-term care rate

By Jennie L. Phipps · Bankrate.com
Wednesday, April 17, 2013
Posted: 5 pm ET

If you have a long-term care insurance policy that you bought several years ago, the odds are great that you have recently received a notice of rate increase or you're about to get one. The increases are often large, and they can be a shock to your retirement budget.

Generally, insurers are prevented from raising the rates on individuals. They must seek permission to raise rates on an entire category of customers -- every client 65 to 75, for instance -- so you're not alone.

State insurance commissions usually aren't eager to give these rate increases. To get an OK, insurers have to persuade the commissions in every state where they do business that they're currently charging too little and without an increase, the company won't have enough money to pay expected claims.

It is a retirement planning truth that the cost of long-term care has gone up. Genworth, the largest long-term care insurer, released its annual Cost of Care survey last week. It showed that the cost of a private room in a nursing home has risen 4.45 percent annually, nationwide, since 2008, with this year's median cost at $83,950 per year.

If a notice of an increase in your long-term care bill arrives in the mail, here are five ways to handle it. The advice comes from the Journal of Financial Planning, a magazine for financial advisers. The author is Michael Kitces, a Certified Financial Planner professional and the director of research for Pinnacle Advisory Group.

  • Reduce the benefit period. If you have a policy that will pay for five to seven years -- or for a lifetime -- cutting the benefit period might be an acceptable economy because the average stay in a nursing home is a little more than two years, according to the National Nursing Home Survey from the government's Centers for Disease Control and Prevention.
  • Reduce the inflation rate on the policy. If your policy has a 5 percent inflation rate, you might safely lower it to 3 percent.
  • Cut the daily benefit amount. If you think you can self-insure for more of the cost, you might consider this option. For many people this is a bad move because it likely comes at a time in life when your risk of needing this insurance is increasing rapidly.
  • Drop the policy. If you can afford to totally self-insure, then you don't need this insurance.
  • Pay the increase. Kitces says prices for new policies have risen dramatically, and even if the cost of your older policy rises 100 percent, you're probably still getting a bargain.
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