The Insurance Buying Guide: Consumer Protections

Partially because of the vulnerability of the senior market and partially because of the complexity of the long-term care insurance product, LTC is among the most heavily regulated areas of the insurance industry.

Serious problems arising out of the first long-term care insurance policies invited regulatory scrutiny and resulted in a flurry of state laws and regulations. Consumer advocacy groups lobbied for tighter and tighter controls on company underwriting practices, policy provisions and agent activities.

Most states have passed laws that prohibit certain practices with regard to LTC insurance. Here is a summary of common consumer protections:

• Applications. Applications for LTC insurance (except guaranteed issue) must contain clear, simple questions designed to ascertain the applicant's health. Each question must contain only one inquiry, and it must require only a yes or no answer (except for names of physicians and prescribed medications). Many times, states require the application to include the warning: "Caution: If your answers on this application are misstated or untrue, the insurer may have the right to deny benefits or rescind your coverage."
  
  If the insurance company does not complete medical underwriting and resolve all reasonable questions on the application before issuing the policy, the company may only rescind the policy or deny a claim on clear evidence of fraud or material misrepresentation. What's more, the fraud must pertain to the condition for which benefits are sought, involve a chronic condition or involve dates of treatment before the date of application, and it must be material to the acceptance for coverage.
• The policy also will have a contestability period -- usually two years. During this time, the insurance company has the right to rescind the policy for material misrepresentations on the application. After that time, even if the insurance company finds out that you lied on the application, it cannot rescind the policy.
• Cancellation. LTC policies may not be cancelled, nonrenewed or otherwise terminated on grounds of age or deterioration of mental or physical health.
• Benefits. Most states have passed legislation establishing standard definitions for LTC terminology and setting minimum benefit standards for eligibility, levels of care and policy provisions. In most cases, policies may not provide coverage for skilled nursing care only, or provide more coverage for skilled care in a facility than for lower levels of care. Plus, no LTC insurance benefits may be reduced because of out-of-pocket expenditures made by you or made on your behalf.
• Exclusions. LTC policies may only exclude coverage for the following:
1. pre-existing conditions (and only for six months);
2. mental or nervous disorders (but not Alzheimer's or senile dementia);
3. alcoholism or drug addiction;
4. war or act of war;
5. participation in a felony, riot or insurrection;
6. service in the armed forces;
7. suicide, attempted suicide or self-inflicted injury; 8) treatment in a government facility provided at no charge to the insured; and
8. territorial limitations.

• Termination of benefits. If the insurance company terminates your LTC insurance policy, it must continue paying any benefits that were underway at the time the coverage was terminated -- without interruption. However, the extension of benefits may be limited to the duration of the benefit period, if any, or to payment of a maximum benefit, and it may be subject to any policy waiting periods and all other policy provisions.
• Disclosure. Limitations on pre-existing conditions must be set forth in a separate paragraph on the first page of the policy and clearly labeled. Any limitations or conditions for eligibility also must be set forth as a separate paragraph and labeled "Limitations or Conditions on Eligibility for Benefits."
  
  Individual LTC policies must contain a renewability provision on the first page of the policy, which states the terms of renewability: duration of the term of coverage and duration of the term for which it may be renewed.
• Outline of Coverage. One must be delivered at the time of LTC policy application. The outline must include a description of the principal benefits and coverage provided by the policy; a statement of the principal exclusions, reductions and limitations of the policy; its renewal provisions, including any reservation of a right to change premiums; and a description of the policyholder's continuation, conversion and replacement rights. If benefits are paid under a "usual and customary" or "reasonable and customary" basis, those terms must be defined and explained in the outline.
• Certificates. A certificate issued under a group long-term care policy must include a description of the principal benefits and coverage provided, a statement of the exclusions, reductions and limitations, and a statement that the group master policy determines governing contractual provisions.
• LTC and life insurance. When an individual life insurance policy provides LTC benefits, it must be accompanied by a policy summary that includes an explanation of how the LTC benefits interact with other components of the policy; an explanation of the amount of benefits available, the length of time benefits will be paid and the guaranteed lifetime benefits (if any) for each covered person; any exclusions, reductions or limitations on LTC coverage, if applicable; disclosure of the effects of exercising other rights under the policy, of guarantees related to LTC costs, and current and projected lifetime benefits.