Are Tax-Qualified LTCI Policies Consumer Friendly?

When the long-term care insurance (LTCI) industry was in its early stages, the policy features and design differed considerably from what we commonly see offered to consumers today.

At the time, LTCI was a relatively new segment of the insurance industry, so there was little history that could be drawn from for reliable sources regarding pricing, underwriting procedures and policy design. As a result, it was kind of like the Wild West in that each carrier typically had their own unique offerings that could be completely different from other LTCI companies. You can imagine how confusing and difficult it was for the average consumer to compare those policies.

A big change took place in 1996 when Congress passed the Health Insurance Portability and Accountability Act (HIPAA). Essentially, Congress recognized that without some federal guidelines, the LTCI industry was headed for trouble. This legislation helped standardize LTCI policies while providing several consumer-friendly features at the same time. These guidelines also helped bring more rate stability to the LTCI marketplace.

Here is a short list of some of the outstanding consumer-friendly features that can be found in tax-qualified LTCI policies these days:

• Elimination of a “medical necessity” benefit trigger. In the past, policyholders who had Alzheimer’s or dementia but had no other obvious need for medical care sometimes did not qualify for benefits under this kind of benefit trigger. Modern tax-qualified policies generally contain two benefit triggers, both of which protect consumers to a greater degree. The first is for policyholders who need assistance with at least two activities of daily living (ADLs) for at least a period of 90 days. The second is for those who have Alzheimer’s or dementia to the degree that they could be a danger to themselves or others if left alone.
• Tax-qualified policies must be guaranteed renewable. This means that insurers cannot cancel or refuse to renew a policy because of age, claims history, or health deterioration, as long as you continue to pay the required premium.
• Policies must include an inflation protection option, and insurance agents must offer and explain this option in their presentation.
• Policies must also include an unintentional lapse provision that permits a policyholder who misses a premium payment because of a cognitive or physical impairment to reinstate the policy up to 5 months later.
• HIPAA also established that LTCI insurers must not practice post-claim underwriting. This is a procedure where the policy is awarded with little or no initial underwriting until the first claim is actually made on the policy. This obviously allows too much room for abuse on the part of the insurer to possibly deny coverage by being overly strict on underwriting when the actual claim is made.

So—are tax-qualified LTCI policies consumer-friendly? The answer is a resounding “yes!” In fact, these are just a few of the consumer friendly aspects of modern tax-qualified policies. So in addition to their obvious inherent tax benefits these policies also come with many attractive policy design features for modern consumers.

Until next time...Duane

Posted in Financing Long Term Care, Long-term Care Insurance (LTCI)