A long-term-care policy can be paid for over many years before the protection is needed, which makes a large premium increase especially painful late in life. Retirees may be offered a stark menu: pay more, accept smaller benefits, or let the policy lapse. Some have dropped coverage after increases, giving up protection when age and health can make a replacement policy unavailable or unaffordable.
Old policies were priced on assumptions that did not hold
Insurers set premiums using forecasts for claims, interest earned on reserves, mortality, and the share of customers expected to cancel. Many early policies assumed higher investment returns and more lapses than actually occurred. When policyholders kept coverage and claims developed differently, companies sought classwide rate increases from state regulators.
The National Association of Insurance Commissioners’ market overview describes rate-increase review and reserve adequacy as continuing regulatory priorities. A carrier generally cannot raise one person’s premium merely because that individual aged or became ill, but it may seek an increase for an approved class of similar policies.
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The response is not limited to paying or canceling
A rate-increase notice often includes benefit-reduction options intended to lower the new premium. These can include reducing the daily or monthly benefit, shortening the benefit period, extending the elimination period before payments begin, or cutting inflation protection.
Each change affects a different part of future coverage. Lower daily benefits increase the amount a household must pay during care. A shorter benefit period limits how long the insurer pays. A longer elimination period raises the cash needed at the start of a claim. Reduced inflation protection can create a large gap between the policy benefit and care costs years later.
Some policies or state rules may offer a nonforfeiture option after a substantial increase. That can preserve a limited pool of benefits based on premiums already paid even if regular coverage ends. It is not equivalent to keeping the full policy, but it can be more valuable than walking away without asking what remains.
Federal evidence shows that increases change behavior
A Government Accountability Office review of the Federal Long Term Care Insurance Program documented how enrollees responded to a premium increase. In the cohort examined, many reduced inflation protection, while 1.6% lapsed coverage. More than nine in ten who retained one richer inflation option experienced an increase of at least 20%.
The GAO findings do not establish one national lapse rate for every private policy. They do establish the mechanism in the title: premium increases can and do lead people to reduce protection or drop it. For retirees on fixed incomes, the decision arrives when the original underwriting advantage from buying younger may be impossible to recreate.
Dropping an old contract can erase valuable terms
Older policies sometimes contain benefits no longer offered at the same price, including richer inflation protection, longer benefit periods, or less restrictive definitions. A replacement application usually requires new medical underwriting. A diagnosis, cognitive change, mobility limitation, or recent care use can produce a denial or a much higher quote.
That makes cancellation different from switching auto insurers. The existing contract may be the only coverage available. Before surrendering it, the policyholder can request an in-force illustration, a full schedule of benefit-reduction options, and a written explanation of any contingent nonforfeiture benefit.
The value test begins with the likely care bill
The original purpose of the policy should guide any cut. If it was bought to protect a spouse from draining retirement assets during years of care, preserving a meaningful benefit period may matter more than maintaining a high daily amount. If family can provide limited support but not round-the-clock care, the elimination period and home-care coverage may deserve priority.
Household assets, income, Medicaid planning rules, family availability, and local care prices all affect the answer. A smaller policy may still cover a substantial portion of home care and preserve savings. Conversely, maintaining a premium that crowds out medications, housing, or basic insurance can create a different and immediate risk.
State regulators hold the policy’s approval record
Rate increases generally require state review, and the approval history can show whether the latest change is part of a longer series. The state insurance department can also explain mandated options, take complaints, and confirm that the notice matches the approved increase. A carrier or agent should provide the policy form number needed for that search.
NAIC research on the market shows why regulators have worked toward more consistent multistate review: the same closed block of policies can span many states, while delayed or uneven increases shift costs among policyholders. That regulatory problem does not make a retiree’s choice easier, but it shows the hike is often rooted in decades-old pricing assumptions rather than an individual’s claim history.
The most damaging response is an unexamined lapse. A careful review may still end in cancellation, but only after pricing every available reduction and identifying what paid-up or nonforfeiture value survives. Years of premiums created an asset, and a rate notice should be treated as a negotiation over that asset rather than an ordinary bill.
The deadline on the notice also matters. Missing the election window can leave the carrier’s default option in place or allow coverage to lapse, so every requested alternative should be obtained in writing before that date.
This article was created with AI assistance and was reviewed, edited, and fact-checked by The Financial Wire editorial team.
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David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
