THREE BIG PROBLEMS WITH LONG TERM CARE INSURANCE
- The underwriting and approval process can be long and difficult
- Claims may not be paid in the future when care is needed, and
- Premiums might skyrocket forcing you to drop the policy
In the years I’ve been in the long-term care industry, the one thing I’ve learned is that the companies that have the toughest underwriting are usually the easiest and the quickest to process and pay claims. At first glance, that statement may seem odd. But when you think about it, it makes perfect sense.
Long-term care insurance underwriting can be difficult. The process may include the review of medical records, blood and urine tests, a telephone interview and maybe even a cognitive test. It is not always easy to qualify for long-term care insurance, and there is a reason for it. Consider the amount of annual premium versus the amount of dollars spent paying a claim. The largest long-term care claim on record is over $1.5 million of benefits, for only a few thousand dollars worth of premiums. The insurer must be certain they do not issue a policy to someone who will go on claim in the very near future.
Call up 10 nursing homes or assisted living facilities in your area and ask the administrator: “Which long-term care insurers pay claims the best.” As in any industry, there are the “good companies” and the “not-so-good” companies. Just because Yugo made a bad car, doesn’t mean that Toyota makes bad cars. The same is true in the LTC insurance industry–there are the “Yugos” and then there are the more reliable insurers.
Of all the companies in the industry, the companies that pay the claims the quickest, by far, have the toughest underwriting. Again, “tough underwriting standards” are a good thing because it means that the insurance company is serious about paying claims.
Some recent news articles have focused on long-term care insurance premium increases. These articles imply that someone buying a policy today will be experiencing the same premium increases as someone who bought a policy 10 years ago. The reality is that someone who buys a policy today has a much lower probability of experiencing a big rate increase.
For example, some states have approved cumulative premium increases, on some LTCi policyholders, as high as 95%. Those policyholders have the choice of reducing their benefits or keeping their benefits the same and paying this higher premium. Those policyholders who elect to keep their benefits the same and pay the additional 95% in premium, their new, higher premium, is actually lower than what you would be paying for the same benefits if you purchased a new policy today. That’s because policies offered today are the MOST EXPENSIVE policies companies have ever offered.
Again, at first glance, you might be upset that if you buy a policy today that it is the most expensive LTCi policy that the company has ever offered. But you shouldn’t be upset. That’s why I said before, “The reality is that someone who buys a policy today has a very low probability of experiencing a big rate increase.” Today’s policies are priced to avoid big premium increases. Long-term care insurance companies have taken what they’ve learned over the past 30+ years and priced the current generation of policies with very conservative assumptions to try to avoid big premium increases in the future.
Again, you won’t hear this from any of the news outlet. The headline, “New LTCi policies unlikely to experience big premium increases” would not sell any newspapers or drive traffic to websites. Neither would the headline, “9 out of 10 Nursing Home Administrators Agree That The Top LTC Insurers Pay Claims Quickly.” But both of those headlines are more accurate than much of the dribble that has been published recently.
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