What Happens If You Can't Afford the Premiums Anymore?

Nonforfeiture Benefits. If, for whatever reason, you drop your coverage and you have a nonforfeiture benefit in your policy, you will receive some value for the money you've paid into the policy. Without this type of benefit, you get nothing even you've paid premiums for 10 or 20 years before dropping the policy.

Some states may require insurance companies to offer long-term care insurance policies with a written offer of nonforfeiture benefit. In this case, you may be given benefit options with different premiums costs. In one type of benefit, when you stop paying your premiums, the company gives you a paid-up policy with shorter benefit period. That means the policy will pay the same daily benefit that you bought but for fewer years. How many years depends on how long you paid premiums. Since it's paid-up, you won't owe any more premiums.

You have the option to add a nonforfeiture benefit if you're buying a tax-qualified policy. The "return of premium" nonforfeiture benefit isn't available in tax-qualified policies, but you may be able to get "reduced paid-up policy" if you drop the policy. You should consult a tax advisor to see if adding a nonforfeiture benefit would be good for you.

Contingent Nonforfeiture. In some states, if you don't accept the offer of a non-forfeiture benefit, a company is required to provide a "contingent benefit upon lapse." This means that when your premiums increase to a certain level (based on a table of increases), the "contingent benefit upon lapse" will take effect. For example, if you're 70 years old and have not accepted the insurance company's offer of a non-forfeiture benefit, when the premium rises to 40% more than the original premium you will be offered the opportunity to accept one of the "contingent benefits upon lapse." The benefits offered are: 1) a reduction in the benefits provided by the current policy so that premium costs stay the same; or 2) a conversion of the policy to paid-up status with a shorter benefit period. You may also choose to keep your policy and continue to pay the higher premium.