What if I Can No Longer Afford My Long-term Care Premium?
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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:
- 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.
- A Shortened Benefit Period
Sometimes 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.
- A Return of Premium
Some 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.
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.
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.