Transamerica’s Long-Term Care Buyout Offer: How the Number Is Set, the Deadline Rules, and Who Should Keep the Policy

If you hold an older Transamerica long-term care policy, your latest rate-increase letter may include something new (and if your policy is paid up, you may get the offer on its own): an offer to buy back your policy for a lump sum. Transamerica calls it a Buyback Offer, a Certificate Buyback Offer or a Policy Cancellation Offer, depending on the document. It began filing the offer with state regulators in late 2020, and Kentucky approved one alongside a rate increase in May 2021.

This page explains what the offer is, how Transamerica sets the amount, what the deadline rules in its filed forms say, how the cash may be taxed, and which policyholders tend to be better off keeping the coverage. Everything here comes from Transamerica's own regulatory filings and other primary sources, listed at the end.

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What the offer is

The buyback is a one-time cash payment in exchange for cancelling your policy. Transamerica's actuarial memorandum to Maryland regulators describes it as an option "to cancel their long-term care insurance policy in exchange for a one-time, lump-sum, policy cancellation payment," given "as an alternative to the premium increase." It arrives only with a rate increase. The filed FAQ for one block says the offer "is only available for a limited time in conjunction with this rate increase."

It sits next to the usual choices on a rate-increase letter: pay the higher premium, reduce your benefits, or take a paid-up policy where that applies. Some letters also include a newer "Benefit Reduction and Cost Sharing" option that comes with a premium guarantee for a set number of years. Our guide to the options in a rate-increase letter covers those.

Accepting ends everything. The filed cancellation agreement says that after you cancel you "will not have any other rights under your certificate, including but not limited to any reinstatement rights, any nonforfeiture rights, any paid-up premium rights, and/or any rights to receive a return of premiums." Two points stand out:

• People already on claim can accept, and their benefits stop. The agreement warns that "if you cancel your certificate you will not receive any certificate benefits for long term care expenses on or after the certificate cancellation date."
• Partnership policies can lose their Medicaid protection. Transamerica's own "Things to Consider" sheet warns that if your policy is a Long-Term Care Partnership policy, "you could be giving up this favorable treatment under the Medicaid laws" by accepting.

How Transamerica sets the amount

Every Transamerica filing we read uses the same formula. The payment is "the greater of: x% of Transamerica's estimate of the value of the policy, and $2,000."

The "value" is an actuarial estimate: the present value of the benefits and expenses Transamerica expects to pay on your policy, minus the present value of the premiums it expects to collect. Put simply, it is Transamerica's best guess at what your policy will cost it from here on. That estimate "will vary depending on numerous characteristics, including issue age, issue date, gender, marital status at the time of issue, policy benefit characteristics and other factors," so two spouses who paid similar premiums can get different offers.

The percentage is blanked out as "x%" in every public filing we found. The one published figure comes from a consulting actuary's 2021 presentation to Kentucky legislators, which summarized Transamerica's Kentucky filing as a buyout "equal to 75% of the estimated value of the policy." We could not confirm the percentage for any other state or year. Within a state, Transamerica says it uses "the same fixed percentage of the policy's Value" for every policyholder.

The practical point: where the percentage is below 100%, as in the one published case, the offer is less than Transamerica expects your policy to cost it. That estimate is an average across many policyholders, not a forecast for you. But the closer you are to needing care, the more the policy is likely worth to you, and the more Transamerica stands to save by closing it. The filed agreement is blunt about negotiating: the amount "is the most that we are prepared to pay," and "if you do not believe that the amount ... is fair or sufficient, you should not cancel."

Which policies get the offer

Transamerica files the buyback block by block, as part of each block's rate-increase filing. The filings we read include it on older individual policy series, including Flex 2, LTC 3, LTC 4 and LTC 5, Future Care, Protector III and the UniProduct series, and on group certificates issued through the National Education Association. Transamerica's 2024 Maryland filing for its legacy forms counted 66,037 policyholders nationwide facing the increase, including the excluded series below, plus 13,540 paid-up policyholders offered only the buyback.

Paid-up policies are included. The 2024 Maryland memo says the buyback "will be offered to both premium paying policies as well as active paid-up policies that are not in Contingent Non-Forfeiture status."

Some series are excluded. The same memo says the offer is "not available" on the Transamerica Occidental (TOLIC) series, which include TransCare Companion, TransCare TQ and TransGenerations, "due to a reinsurance agreement." We found no filing either way for TransCare II and TransCare III, the products Transamerica sold until it stopped selling standalone long-term care insurance on March 31, 2021.

Deadlines and paperwork

The most detailed rules we found are in sample forms included in a Virginia rate filing for Transamerica's NEA group certificates. Individual policy letters in other states may set different dates, so check the dates in your own letter. Under those forms:

• You have 180 days from the date of the rate-increase letter to complete the buyback.
• You first tick the buyback option on the Quote Selection Sheet and return it within 60 days. Transamerica then sends a cancellation agreement.
• The agreement must be signed, notarized and received by the Agreement Return Due Date. The form says to mail it "so that it is received by us on or before" that date, so mailing it on the last day is not enough.
• Keep paying premiums until then. Ticking the box is not acceptance. The selection sheet warns that if you don't return the agreement in time, "you will need to pay your premiums when due to prevent your coverage from lapsing." Transamerica also says it "cannot delay the premium increase" while you decide.
• Payment comes within 30 days after Transamerica receives (or, in one place, accepts) the completed agreement.
• If you do nothing, nothing changes. "If you choose not to cancel your certificate, or if you do not respond to this offer, your certificate will not be cancelled and you will not receive a certificate cancellation payment."

Under those forms, the policy is cancelled on the date you sign, as long as the agreement arrives in time, and payment follows later. The gap can matter. In 2023 ThinkAdvisor reported a lawsuit filed in a Connecticut state court by the executor of a policyholder's estate. Transamerica offered her a buyback in September 2022, she accepted, and Transamerica agreed to pay $63,324.56. She died on January 9, 2023, and the estate says Transamerica refused to honor the agreement. The article does not say why, and we could not find how the case ended.

How the cash may be taxed

Transamerica does not give tax advice. Its filings say policyholders will be told that "we may send to the Internal Revenue Service and the policyholder an IRS Form 1099 reporting taxable income with respect to the policy cancellation payment," and that "in some circumstances the amount of taxable income the policyholder realizes ... could exceed the amount that we report."

The tax law here is not settled. Many long-term care policies are "tax-qualified," and the tax code treats them like health insurance and bars them from having a cash surrender value. We found no IRS ruling on how a buyout of one is taxed. In practice:

• The part above what you paid in premiums is commonly assumed to be the taxable part, but no IRS guidance confirms it.
• Premiums you deducted or that an employer paid can make more of the payment taxable, including part of the amount up to what you paid. Transamerica's own forms point to this.
• A large payment can have knock-on effects. It can make more of your Social Security taxable and raise Medicare premiums two years later. Cash in the bank also counts as an asset if you later apply for Medicaid.

Get a tax professional's answer before you sign. Our guide to how long-term care insurance is taxed covers the benefit side.

Who should usually keep the policy

• Paid-up policyholders. If you no longer pay premiums, keeping the policy costs nothing. The question is only whether the cash is worth more than free coverage.
• Anyone with an unlimited or long benefit period, or a strong inflation rider. Coverage like this is rarely sold today, and never at your old premium, so a buyout gives up coverage you likely cannot replace.
• Older policyholders and those with health problems. The nearer you are to a claim, the more the policy is worth to you.
• Anyone who may already qualify for benefits. If you need help with two of the six daily activities (bathing, dressing, eating, toileting, transferring, continence) or need supervision because of a severe cognitive impairment, ask about filing a claim first.
• Partnership policyholders who are counting on the Medicaid asset protection.

Who might reasonably take the cash

• Policyholders who would drop the policy anyway. If the new premium is more than you can keep paying, cash now beats lapsing later.
• Holders of small policies with large, rising premiums. A short benefit period with no inflation rider can be worth less than the offer once future premiums are counted.
• People who can comfortably pay for care themselves and would rather stop paying premiums.
• People who expect to rely on Medicaid, where policy benefits may mostly reduce what Medicaid pays.
• People with a serious illness that shortens life expectancy, or who need the money now.

A worked example

Take a paid-up policy bought in 1999: $100 a day, a 90-day waiting period, an unlimited benefit period and no inflation rider. The policyholder is 85, has paid $20,000 in premiums, and is offered $45,000. If the $25,000 gain is taxed at 12%, the cash after tax is about $42,000. That equals 420 days of benefits at $100 a day. Add the 90-day waiting period, and keeping the policy pays more if care lasts longer than about 17 months; the cash pays more if care is shorter or never needed. Since the policy is paid up, there are no premiums to add. At 85, a claim of that length is a real possibility, which is why paid-up policies with unlimited benefits are usually worth keeping.

Now take a 66-year-old paying $3,200 a year for a two-year, $100-a-day policy with no inflation rider, facing a large increase and offered $30,000. A full two-year claim pays at most $73,000. If the premium keeps rising 5% a year and care doesn't start until the late 70s or later, the premiums plus the cash invested at 3% come to more than that, so the cash comes out ahead. If care started before about 75, the policy would still win. Run your own numbers in the buyout calculator.

What to do before your deadline

1. Find two dates in your letter: the letter date and the agreement due date.
2. Call the customer service number printed on your letter. Ask whether the agreement must be received or postmarked by the due date, whether it needs notarizing, and whether you can return it by fax.
3. Ask whether you already qualify for benefits if your health has changed.
4. Ask a tax professional how much of the payment would be taxable.
5. Get a free second opinion from your State Health Insurance Assistance Program (SHIP). SHIPs give free, unbiased counseling, including on long-term care insurance. Find yours at shiphelp.org, or call the national SHIP center at 877-839-2675 to be pointed to yours.

For the general case beyond Transamerica, see the LTC buyout offer: how to weigh the cash against keeping your policy. For Transamerica's rate increases, see our Transamerica rate history.

This is analysis of public regulatory filings and other records, not legal, tax or insurance advice. Your letter and your policy control.