What if I Can No Longer Afford My Long-term Care Premium?

Even though you plan ahead and intend to keep your long term care insurance policy, sometimes the unforeseen happens and the money you set aside to pay your premium has to be used for something else. As a result, you may have to stop paying your premium.

If I stop paying, what happens?

If you have not purchased a nonforfeiture benefit, the policy terminates at the end of the premium paying period with no further benefits for expenses incurred after that date.

But if you have purchased a policy with some type of nonforfeiture benefit, then, as the term implies, you will not forfeit all benefits at the end of the period covered by your final premium and will remain eligible for a reduced benefit, giving you some value for the money you paid into the policy. Without a nonforfeiture benefit, you get nothing, even if you paid premiums 20 years before dropping the policy.

With a nonforfeiture benefit, the insurance company gives you a paid-up policy, when you stop paying the premium. At that time, the company gives you a choice of nonforfeiture benefit, in accordance with the wording in your policy. The typical choices are:

1. A Reduced Paid-Up Benefit If you allow your policy to lapse after a specified number of years, the policy will continue indefinitely with reduced daily benefit amounts, though with some insurance companies, this applies only to nursing home benefits.
2. A Shortened Benefit PeriodSometimes called an “extended term benefit,” this benefit provides that if you allow your policy to lapse after a specified number of years. the policy will continue to pay the same benefits that would have been covered under your policy until the nonforfeiture benefit amount is exhausted – in other words, for a limited period of time.
3. A Return of PremiumSome insurance companies also may offer this option at termination of your policy. With this option, if you drop coverage after a certain number of years, the company will return all or part of the premium that you paid. Usually this is the most expensive type of nonforfeiture benefit.

What does it cost?

With any of the three nonforfeiture benefits, you get what you pay for. They are not free. A nonforfeiture benefit can as much as double the cost of a policy, though the average premium increase for this benefit is about 40 percent of the base premium. The cost may depend on a number of factors, such as your age at the time you buy the policy, the type of nonforfeiture benefit you select, and whether the policy includes inflation protection.

State Requirements

Some states require insurance companies to make a written offer of nonforfeiture options when you apply for long term care insurance. If you reject the offer, companies are required to keep your written rejection.in their records.

Contingent Nonforfeiture

In some states, if you don’t accept the offer of a nonforfeiture benefit, insurance companies are required to provide a contingent benefit upon lapse. This means that a nonforfeiture benefit must be provided if—and this is the contingency– the company increases the premium by a specified percentage based on the original issue age. The younger you are when you purchase your policy, the higher the percentage must be to activate the contingency. For example, if your issue age is 30, the required premium increase may be as high as 200 percent, but if your issue age is 80, the required premium increase may be only 20 percent. The contingent benefits offered are the Reduced Paid-Up Benefit and/or the Shortened Benefit Period Benefit.

Case Studies: Affording Long-Term Care Premiums Becomes Challenging

Case Study 1: Struggling With Unforeseen Circumstances

John and Margaret, both in their early 70s, had been paying their long-term care insurance premiums for over 20 years. They had planned to rely on the policy to cover their potential future care needs. However, unexpected medical expenses for Margaret’s health condition strained their finances, making it difficult to continue paying the premiums.

They were unaware of the nonforfeiture options available in their policy and, unfortunately, had not included them. As a result, when they could no longer afford the premiums, their policy terminated, leaving them without the coverage they had counted on during their retirement years.

Case Study 2: A Lifeline in Tough Times

Sarah, a 60-year-old retiree, had the foresight to choose a long-term care insurance policy with a nonforfeiture benefit. After paying premiums diligently for 15 years, she faced a sudden financial setback when her investments took a downturn. Unable to maintain her premium payments, Sarah activated the nonforfeiture benefit in her policy. As a result, her policy converted to a reduced paid-up policy, providing her with some coverage despite no longer paying premiums.

Case Study 3: Weighing the Costs and Benefits

Michael, aged 50, decided to purchase a long-term care insurance policy to secure his future. He had the option to include a nonforfeiture benefit in his plan but was hesitant due to the additional cost. Over the years, Michael managed to save a considerable amount of money, which he believed could cover any potential care expenses.

However, when he faced an unexpected financial setback, he regretted not including the nonforfeiture benefit in his policy. Without this option, he had to make a difficult choice of either surrendering the policy or adjusting his lifestyle significantly to continue paying premiums.

Case Study 4: State Requirements Provide Protection

Lisa, a 45-year-old professional, lived in a state that mandated insurance companies to offer nonforfeiture options when applying for long-term care insurance. Although the premiums were slightly higher with these options, Lisa decided to go for it to protect her investment.

A few years later, she experienced a temporary loss of income, making it challenging to pay premiums consistently. Thanks to the state requirement, her insurance company presented her with a written offer of nonforfeiture benefits, giving her valuable choices to maintain some coverage despite her financial constraints.

Case Study 5: Contingent Benefit Activation

Robert, a 55-year-old policyholder, chose not to accept the initial nonforfeiture benefit offer when he first purchased his long-term care insurance policy. As he reached his 60s, he faced an unexpected financial burden, making it difficult to continue premium payments.

Fortunately, his state had a contingent nonforfeiture provision based on a specified percentage premium increase. When the company raised his premium by the required percentage, Robert’s policy converted into a reduced paid-up policy, giving him much-needed coverage even without ongoing premium payments.