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As premiums rise, should you drop long-term care?

NEW YORK — Every day, Jesse Slome says, about a half-dozen people contact his office at the American Association for Long-Term Care Insurance to complain about premium increases on their policies.

Financial planners, too, are hearing from their clients. “We’re definitely seeing a lot of increases, especially for older policies,” said Clarissa Hobson, a financial planner with Carnick & Kubik in Colorado Springs. Some increases are as much as 40 to 60 percent.

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The calls are unlikely to end anytime soon; major insurers have been successfully seeking state approval to raise premiums on existing policies, and the increases are typically phased in over several years.

Long-term care insurance helps cover the cost of care you may need as you age. Long-term care insurance covers help with daily activities like washing, dressing, and bathing. Medicare, the federal health program for older Americans, generally doesn’t pay for such care. So if you don’t have coverage, you will need to pay for such costs out of pocket, unless you have very little income and qualify for Medicaid.

But big losses on improperly priced policies issued more than a decade ago have prompted some insurers to exit the long-term care insurance business altogether. Those remaining are trying to stem the tide of red ink by seeking approval from state insurance commissions for premium increases. This is upsetting for consumers, many of whom bought policies in the belief that their premiums wouldn’t change.

Genworth Financial, the largest seller of long-term care policies with roughly 35 percent of the market, began seeking increases on existing policies in 2012, with the goal of raising $250 million to $300 million in additional premiums by 2017. By the end of last year, the company said, it had received approvals from 41 states.

Thomas J. McInerney, Genworth’s chief executive, said the industry overall made incorrect assumptions when it set premiums for older policies — particularly, those issued before 2002. The company needs premium increases of 50 percent, on average, for the older policies, to break even, he said.

Here are some questions to consider if you receive a notice:

Q. If I get a big increase, should I cancel my policy and shop for a new one?

A. It’s very unlikely, if you’ve had your policy for more than a year or two, that you will be able to buy a new policy at a better rate, Slome said. It will most likely be harder to qualify for a new policy, because you’re older than when you purchased your original policy, and underwriting standards have become much tougher.

Q. How can I decide if I should pay the higher premium or opt for benefit cuts?

A. Howard S. Krooks, an elder law specialist in Boca Raton, Fla., said he generally advised clients that if the increase was 20 percent or less, they should “bite the bullet” and pay it. But if the increase is much higher, or if the new amount is a true stretch for them, they may consider reducing their benefits — for instance, by accepting a daily benefit amount of $250 a day, rather than $350 — to keep the premium down.

Q. Are there other ways to reduce my premium?

A. You may be able to accept a lower rate of inflation protection in exchange for a lower premium, said Vincent J. Russo, an elder law lawyer in New York. If your policy increases your benefit 5 percent annually as an inflation hedge, for instance, you may be able to reduce it to 3 percent, or drop inflation protection entirely. (Hobson warns, however, that you should check the details of your policy to make sure you’re not agreeing to have the lack of inflation protection retroactively, which would substantially reduce your ultimate benefit.)

Q. If I cancel my policy, will I lose all the money I’ve paid over the years?

A. Most insurers offer an option that lets you obtain benefits equal to the premiums you’ve paid if you end the policy. So if you had paid $20,000 in premiums, you would be eligible to receive $20,000 in benefits, assuming you meet the criteria for a claim. This should be considered a last resort, however, lawyers say; it won’t pay for anywhere near as much care as your policy would if the policy remained in full force.

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