Taking Care of Mom and Dad: Consumer Protections
Like Medigap insurance, long-term care policies are regulated by state insurance departments. Consumer protections that have been implemented at the state level include rules for full and fair disclosure of LTC insurance terms and benefits, including:
- terms of renewability;
- conditions of eligibility;
- nonduplication of coverage;
- termination of coverage;
- probationary periods;
- limitations, exceptions and reductions;
- elimination periods; and
- recurrent or pre-existing conditions.
Other common rules, designed to protect LTC insurance buyers, include:
- Riders or endorsements that reduce or eliminate benefits usually require the signed acceptance of your parents (unless they requested the change in the first place). Riders or endorsements that increase benefits and increase the premium must also be accepted in writing -- unless the change is required by law.
- Limitations on preexisting 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 must be set forth as a separate paragraph and labeled "Limitations or Conditions on Eligibility for Benefits."
- Insurers must display prominently on the policy and the outline of coverage a statement that resembles the following notice: This policy may not cover all of the costs associated with long-term care incurred by the buyer during the period of coverage. The buyer is advised to review carefully all policy limitations.
- Insurers must make every reasonable effort to discover whether an applicant already has LTC insurance, and the type and amounts of such insurance.
If your parents already have a long-term care policy and want better benefits, they might try to enhance their existing policy with additional riders (it might be cheaper to do this than to buy a new policy). Or, they can replace their policy with a new one. This might make sense if they have an older policy with requirements for prior hospitalization and if they are in good enough health to qualify.
As with Medigap insurance, there's a lot of abuse in the selling of LTC insurance. Some unnecessary replacement LTC policies are sold. If your parents are replacing theirs, be sure their application for the new policy is accepted before they cancel the old policy. When they switch policies, pre-existing condition restrictions will usually apply and they may not have coverage for a period of time.
State laws prohibit brokers and agents from persuading anyone to replace an LTC policy unnecessarily, especially when the replacement causes a decrease in benefits or an increase in premium. Some states set a standard -- such as three or more policies sold to a person in one 12-month period -- as being presumed unnecessary.
Long-term care insurance application forms must include a question about whether the proposed insurance is intended to replace any existing LTC coverage. If a sale involves a replacement, the insurance company is required to furnish the applicant with a notice regarding replacement of long-term care insurance.
Except when the replacement coverage is group insurance, the replacement notice must include a statement signed by the agent documenting that, to the best of the agent's knowledge, the replacement coverage materially improves the policyholder's position. The statement must also include the specific reasons the agent is making this recommendation.
If existing coverage is converted to or replaced by a new form of LTC insurance with the same company (except for an increase in benefits voluntarily selected by the policyholder) the insurance company may not establish any new waiting periods.
Insurance companies offering LTC coverage must establish marketing procedures to assure that comparisons of policies are fair and accurate and that excessive insurance is not issued.
