Many consumers are kept in the dark about long-term care by an insurance sales force that, intentionally or not, sometimes preys on their ignorance,” says Martin Weiss, chairman of Weiss Ratings. “Unfortunately, industry leaders and regulators don’t perceive this as a high priority and have largely failed to devise vehicles to improve how the public is informed.”
Weiss has identified seven of the most common pitfalls consumers encounter:
Long-term care policies vary greatly, but it is often unclear why. Price variations can be due to a number of factors—differences in benefits, a company’s desire to increase or decrease its market share in a particular area or flaws in a company’s pricing method.
Premiums cited in the table adjacent to this article are based on comprehensive coverage of nursing home care, community-based care, home healthcare with a three- or four-year benefit period, a 60-day deductible period and a $100 daily benefit.
Under this scenario, a long-term care policy from Continental Casualty would cost $691, whereas a similar but not-identical policy from Unum Life would cost $1,062—nearly $200 more. One reason for the extra cost may be that the Unum Life policy includes extra features. These features have value, but you may or may not want them. Also note that Unum has earned a slightly higher safety rating.
Recommendation: Shop around, and do not buy benefits you don’t need.
Some of the cheapest policies today may be the most expensive later. Many companies have recently begun selling long-term care insurance. However, they often lack the experience needed to accurately price their policies. As a result, they may offer a big break in premiums initially, only to sharply increase rates later.
Recommendation: Favor companies that have sold long-term care insurance for 10 years or longer.
No national standards exist for long-term care facilities. Precise definition of facilities, such as assisted living facilities and adult day care centers, can vary greatly from policy to policy and from state to state. Consequently, if you buy a policy in one state and then retire to another, there may be no facilities in your new state that meet the precise definitions in your policy.
Recommendation: Be sure you understand exactly what kind of facilities the policy covers before buying. Then, call the facilities located in the area where you will be living to make sure they fit the criteria.
Future long-term care facilities may not fit the criteria of present policies. The long-term care industry is changing. Therefore, if you buy a policy at age 60 but don’t use it until age 70, the types of facilities defined in your policy may no longer match what’s available.
Recommendation: Although it’s difficult to predict the future, your goal should be to buy a policy within 10 years of the time you expect to need it.
Spousal discounts may not be guaranteed. Most companies only give a spousal discount if you and your spouse each purchase an identical policy. However, buying exactly the same policy as your spouse may not be a good idea, since women usually live longer and are far more likely to live alone in their later years, resulting in very different long-term care needs.
Recommendation: If you take a spousal discount, make sure it’s valid even if your policies differ.
Insurance salespeople may overstate the benefits of alternate care plans. An alternate care benefit supposedly allows you to choose the care and setting appropriate to your needs at the time you need care—even if that particularly type of care is not covered in your policy. Unfortunately, this benefit is only as good as the insurer’s willingness to allow its use. The language of many alternate care policies leaves so much open to interpretation that the company is virtually free to force you into the facilities it covers, defeating the purpose of this feature.
Recommendation: Unless a policy has language that specifically defines what it will offer, do not let this benefit influence your purchase decision.
Claims of no rate hikes may be misleading. Insurance company literature often contains phrases such as: “We will not raise the premiums for your policy unless we raise the premiums for all policies in your class.” Unfortunately, many companies and state regulators have no precise definition of a class. This allows them to manipulate the definition of class and raise premiums at almost any time.
Recommendation: Insist on wording such as: “We will not raise the premiums for your policy unless we raise the premiums for all policies in your state.”
Some states are attempting to address these pitfalls. California has enacted legislation that requires companies to pay assisted living benefits to any facility with a particular state license. California may require its Department of Insurance to publish a guide listing rate increases.
Provided to the Business Examiner by Weiss Ratings, the independent provider of insurance company ratings and analyses.