Why Traditional LTC Premiums Rise — and What Policyholders Can Do

The Root Cause: Why LTC Pricing Went Wrong

To understand why your LTC premium may have increased — or could increase in the future — you need to go back to how these policies were originally priced. In the 1980s and 1990s, long-term care insurance was a relatively new product. Actuaries had limited historical data to work with, and the assumptions they built into pricing models turned out to be wrong in almost every direction.

Here are the three core mispricing errors that drove the industry into a rate-increase cycle:

1. Lapse rate assumptions

Insurers assumed a meaningful percentage of policyholders would cancel their coverage over time — a standard actuarial assumption for most insurance products. But people who buy LTC insurance tend to keep it. They often bought it precisely because they feared needing care. Actual lapse rates came in far below projections, meaning insurers had to fund far more future claims than expected.

2. Investment return assumptions

Premium income that isn't paid out in claims is invested, usually in bonds. Early LTC policies were priced assuming relatively robust bond yields. The prolonged low-interest-rate environment following the 2008 financial crisis — and again after 2020 — crushed those projected returns, leaving insurers with a smaller financial cushion than they planned for.

3. Claims severity and duration

People are living longer, and conditions like Alzheimer's disease can require care for far more years than earlier models projected. The average LTC claim turned out to be longer and more expensive than the actuarial tables predicted.

The combination of all three factors created a structural deficit. Insurers that wanted to stay solvent had no choice but to seek rate relief from state regulators. See our complete breakdown of LTC premium drivers for a deeper look at how these variables interact.

How Rate Increases Actually Work: The Regulatory Process

One of the biggest misconceptions about LTC rate increases is that insurers can simply raise prices whenever they choose. They cannot. Every premium increase on an in-force LTC policy must go through a formal state regulatory approval process. Here's how that process works in practice:

1. Actuarial filing: The insurer submits detailed actuarial data to the state insurance department demonstrating that the current premium is inadequate — meaning expected future losses will exceed projected future income.
2. State review: Regulators scrutinize the filing, often hiring independent actuaries to validate the insurer's projections. They can approve the full requested increase, approve a partial increase, or deny the increase entirely.
3. Phased implementation: Some states require large increases to be implemented in stages — for example, 15% this year and another 15% next year — rather than all at once.
4. Notice to policyholders: Once approved, the insurer must notify you in writing at least 30 to 60 days before the new premium takes effect, depending on your state. The notice must also describe the benefit modification options available to you.

This process provides some protection, but it doesn't prevent increases from happening — it ensures they are actuarially justified before policyholders are asked to pay more. Rate approvals have been granted in virtually every state because the underlying need has been real: many LTC blocks of business are genuinely underfunded relative to future projected claims.

Your Options When a Rate Increase Arrives

Receiving a rate-increase notice in the mail is stressful, but it is not a take-it-or-leave-it situation. Federal and state consumer protection rules require insurers to offer alternatives. Here is a plain-English breakdown of what you can do:

Option 1: Pay the New Premium

If the increase is manageable and you can afford it, this is the simplest path. Your coverage stays exactly as designed, with all original benefits intact. If you purchased inflation protection — which is critical for most people — keeping the full policy is usually worth significant sacrifice elsewhere in your budget.

Option 2: Reduce Benefits to Hold Your Premium Steady

This is the most commonly used alternative. The insurer will offer you a menu of modified benefit options priced to match your current premium. Common reductions include:

• Shortening the benefit period (e.g., from five years to three years)
• Reducing the daily or monthly benefit amount
• Eliminating or reducing the inflation protection rider
• Increasing the elimination period (the waiting period before benefits begin)

Each of these reduces your coverage, so think carefully about which benefit you can most afford to trim. If you are worried about common LTC planning mistakes, cutting inflation protection is often the riskiest move — care costs typically rise 3% to 5% per year, and that compounding matters over a long benefit period.

Option 3: Accept Non-Forfeiture or Contingent Non-Forfeiture Benefits

If you simply cannot afford any premium at the new level, check whether your policy includes a non-forfeiture benefit. This provision — either purchased as a rider or triggered automatically under state contingent non-forfeiture rules — preserves a reduced paid-up benefit if you stop paying. Under contingent non-forfeiture rules (which vary by state), if the cumulative premium increase exceeds a certain threshold, you are entitled to convert your policy to a paid-up status with a benefit equal to the premiums you have already paid. It is not full coverage, but it is far better than walking away with nothing.

Option 4: Surrender the Policy

This is the last resort. You stop paying, the policy lapses, and unless a non-forfeiture provision applies, you lose all coverage and all premiums paid to date. The only scenario where this might make sense is if you have become medically ineligible to use the benefit or if you have a genuine financial emergency. Surrendering a policy should never be done without first exploring all of the alternatives above.

“The rate increases we've seen in traditional LTC blocks aren't a sign of bad faith — they're the consequence of an industry that priced a long-duration product with insufficient data. The real risk for consumers today is not whether another increase is coming, but whether they'll still be healthy enough to pivot to an alternative when it does.”

— Jesse Slome, Director, American Association for Long-Term Care Insurance

Comparing the Rate-Stability of Alternative LTC Structures

Traditional standalone LTC insurance is not your only option for covering long-term care costs. Two alternatives have grown significantly in popularity precisely because they solve the premium volatility problem.

Hybrid LTC Policies

A hybrid policy combines a life insurance contract (or annuity) with an LTC benefit rider. You typically pay a single lump-sum premium or a fixed multi-year premium schedule, and that rate is locked in — the insurer cannot come back later and ask for more. If you never need long-term care, your beneficiaries receive a death benefit. If you do need care, the policy pays benefits up to its LTC limit.

The trade-off: hybrid policies cost significantly more upfront than equivalent standalone coverage. They also require you to tie up a large sum of capital. But for many people, the certainty of a fixed premium — and the return-of-premium or death-benefit backstop — is worth the higher initial cost. Our standalone vs. hybrid LTC comparison walks through how each structure fits different financial situations.

LTC Riders on Life Insurance Policies

A long-term care rider can be attached to a whole life or universal life policy. The LTC benefit is funded through the policy's death benefit — if you use LTC benefits, the death benefit is reduced dollar-for-dollar (or by some calculated factor). Because premiums are tied to the life insurance structure, they are generally more stable than standalone LTC pricing.

This approach does involve trade-offs: you may have less LTC coverage flexibility, and the benefit structure is less customizable than a standalone policy. See our LTC rider vs. standalone policy comparison for a direct side-by-side analysis.

Practical Steps to Take Right Now

Whether you have already received a rate-increase notice or simply want to prepare, there are concrete actions you can take today to protect your position.

If You Have Not Yet Received an Increase

• Review your current policy benefits in detail. Know your daily benefit, benefit period, elimination period, and whether you have inflation protection. This is your baseline for evaluating any future offer to reduce coverage.
• Check your insurer's rate history. Contact your insurer or state insurance department and ask whether your policy block has had prior rate increases. A history of increases can be an indicator of future actions.
• Assess your non-forfeiture options. Confirm whether your policy includes a non-forfeiture rider or whether your state's contingent non-forfeiture rules would apply to you.
• Explore alternatives now, while you are still healthy. If you are considering switching to a hybrid product, you will need to qualify medically. The longer you wait, the more likely a health change could make you uninsurable. Our guide on LTC underwriting and declinations explains what health conditions can block you from qualifying.

If You Have Received an Increase Notice

• Do not ignore the deadline. The notice will include a response deadline. Missing it often means you are automatically placed at the new premium rate without any benefit modification.
• Request the full menu of benefit modification options in writing. Insurers are required to provide these; ask for every alternative, not just the one they highlight in the letter.
• Run the numbers on inflation protection first. Before you eliminate your inflation rider to save money, project what your benefit will be worth in 10 or 20 years without it. At 5% annual growth, care costs double in about 14 years.
• Consult an independent insurance professional. A broker who is not tied to one company can help you compare your modified-coverage options against current hybrid products to see which path makes more financial sense.

Understanding the Bigger Picture: LTC Costs Are Not Going Down

Even with rate increases, maintaining some form of traditional LTC coverage is often better than having no coverage at all. The median annual cost of a private room in a nursing home in the United States now exceeds $100,000, and home health aide costs have risen sharply as well. Surrendering a policy to avoid a premium increase may save money in the short run but could expose you to catastrophic out-of-pocket costs later.

At the same time, LTC insurance is not the only vehicle for managing long-term care costs. Some people use a combination of self-insurance (earmarking investments specifically for care costs), hybrid LTC products, and Medicaid planning for assets below certain thresholds. Understanding how premiums and cost-sharing work across insurance types can help you see how LTC fits into your broader financial protection strategy.

The core lesson is this: a rate increase is not evidence that your insurer is behaving badly or that your policy is a bad product. It is almost always the result of systemic mispricing decisions made decades ago, not a bait-and-switch. Your best defense is staying informed, knowing your options, and acting before the increase reaches a level that forces difficult choices.