Comparing Long Term Care Insurance Policies and Insurers

by Jennifer J. Girdler

When comparing long term care insurance policies and insures, the most important factors to consider are the type of policy offered and the company stability.

Individual stand-alone, comprehensive long term care insurance policies represent the bulk of policies sold. These plans cover most long-term care services and are usually purchased with monthly, quarterly, semiannual or annual premiums, which are paid for the life of the insured. Abbreviated payment options are also available with policies fully paid up after 10 years or to age 65. Comprehensive stand-alone policies are very much like the typical modern group or individual health insurance policy. They try to cover as many different care alternatives as possible.

True group plans are offered by many employers. There are advantages to the employer. For the employer, these long term care insurance policies are usually guaranteed issue, meaning no disqualifying health questions for full-time employees. With guaranteed issue, no employee gets discriminated against if he or she has a disabling or potential disabling condition. As a group plan, a select set of identical benefits can be offered to all employees no matter which state they live in. Other benefits other than the select set may be available but usually require medical underwriting, i.e.. health questions are asked and medical records obtained. In most cases, group plans have watered down benefits and are not recommended to people who can qualify for individual policies.

There are other ways to package long term care insurance policies as well. One is as a rider to a cash value life insurance policy. The policy represents two separate coverages and the premium is split up to pay for both. Since very little long-term care could be certified as terminal, this policy feature is a poor substitute for true long-term care insurance and is not highly recommended. Tax Qualified plans are offered by most carriers. Congress defined tax qualified policies in the HIPAA (Health Insurance Portability & Accountability Act) legislation of 1996. The intent was to create an objective test for determining benefit eligibility. There is a great deal of debate in the industry over the merits of qualified versus non-qualified plans. Advocates of non-qualified argue that the government made it more difficult to qualify for benefits by defining the benefit triggers too narrowly. Most non-qualified contracts are more liberal in defining benefit eligibility. However, what is missing from this debate is that tax qualified plans moved the certification of benefit eligibility from claims people at the insurance company to an impartial third party. Tax qualified requires any licensed health care practitioner to certify eligibility. Opponents of qualified assume insurance companies are going to be as impartial as a third party certification. The other issue with qualified is taxability. Only qualified policies sold after January 1, 1997 allow for income tax exemption on benefits received up to a certain limit. Also limited itemized deductions are allowed on qualified long term care insurance policies. If Congress passes long-anticipated legislation allowing above-the-line deductions for long term care insurance policies, it will only pertain to qualified policies. For these reasons I think it's important that you select a carrier offering tax qualified policies.

When choosing the right company, there are many factors to consider.

1. Company Financial Strength and Size

Few companies have more than 10 years of claims experience. With such limited experience most companies don't have definite actuarial guidelines for the premium reserving required for claims 20 to 30 years from now. If claims experience turns unfavorable, it will take a large company with deep pockets to continue paying claims. Small, poorly rated companies will have little chance of surviving a bad claims experience. The second reason for picking strength and size is because of the current market environment. The current market is not large enough for all the players. In 2000, 13 companies controlled about 90% of the market and these carriers continue to consolidate and grow market share by buying out discouraged carrier's business. The other 10% of the market belongs to over 100 companies. It takes a lot of money to introduce a new product, build market share and reach a critical mass of premium income that eventually starts producing profits. Only large, successful companies have the resources to stay the course and build market share. Most employees buying long term care insurance policies will probably not make claims until age 78, which is the average claims age nationally. In 1999, the average purchaser of group long-term care insurance was aged 43. Thus, the average worker may not make claims for 35 years. You can see why it is extremely important to pick a company financially strong enough to be around 35 years from now.

2. Company Commitment to Long-term Care Insurance

It is crucial to pick a carrier that has a long-range commitment to long-term care. Many carriers are selling the product as a defensive move, not to be left out if sales really start soaring. A good indicator of the commitment level is to observe the level of resources devoted to a company's long-term care business. Another indicator of commitment is the amount of market share a company has. Obviously a larger market share is going to commit a company to staying with long-term care insurance because of a substantial financial obligation.

3. Rate Stability

Companies do not sell policies with locked-in premiums. For an industry with little claims experience, to guarantee rates for insurers, who may not collect for another 40 years, would be impossible. Some carriers do offer short-term rate guarantees but these are limited. All policies use "guaranteed renewable" premiums. This means, once the coverage is approved, the company cannot increase premiums for an individual policyholder for a change in age or health. The company can, however, file a rate increase for a class of policyholders or all policyholders on a specific contract form in any state. The current intent of insurance regulators is to promote rate stability in the LTCi industry, much like the stability we see in life insurance. This is primarily to protect older policyholders on fixed incomes from losing their policies if rates go up. But even the regulators know that a lack of long-term claims experience makes it hard to predict future claims. As a rule, underwriting philosophy combined with loss ratio is a more accurate predictor for rate increases. It appears that underwriting will have the greatest effect on rate stability. Companies who are more conservative on approving certain health conditions will keep claims payouts lower and therefore be able to keep premiums stable. in all, there are many important factors to consider which can greatly affect the outcome of your claim years down the road. It may be a lot to digest, but will be well worth it when the time comes. This is the very reason you will need an expert who specializes in this field to guide you to find the best long term care insurance policies.

As you can see, there is a lot to consider when choosing and comparing long term care insurance policies and insurers. The best advice is to find an expert that represents several companies to help find a long term care insurance policy and insurer that will best fit your needs.