Thursday, December 27, 2007

Beware Long-Term Care Insurance

Many people will need long term care at some point usually late in their lives, and this care is expensive. The insurance industry offers long-term care insurance to pay for this care. However, you have to be aware of the many possible abuses with this type of insurance.

This Consumer Law Page article provides an excellent explanation of long-term care insurance and the types of abuse and fraud that are possible (the web page with this article has disappeared since the time of writing). Disclaimer: I have no affiliation with the law firm associated with this article.

The abuses include such things as loopholes that allow the insurance company to deny benefits, lack of inflation protection, and targeting seniors by getting them to churn their policies. Churning refers to the practice of getting someone to buy a “new and improved” policy every year to boost premiums and boost the salesperson’s commissions.

There is another problem that probably would never have occurred to me, but seems obvious once you hear about it. Let me quote directly from the article:
“When buying long-term care coverage, the consumer should anticipate that premiums will increase to levels that in all probability will severely strain a fixed-income budget, resulting in cancellation, just prior to the time when coverage is needed. All insurance companies know this because their records confirm an increasing level of cancellations as premiums increase with aging policies and aging policyholders. The customer does not. The end result is a system that is rich with the potential for fraud. Add to this situation the fact that sales agents are driven by high commissions and the potential for fraud can readily become a reality.”
It makes sense that premiums have to be high at some point. Long-term care is expensive, and the premiums you pay have to cover the expected benefits you receive plus the costs and profits of the insurance company.

I don’t know whether long-term care insurance is a good idea or not, but it pays to look into the details of any plan you buy to make sure that the coverage will be there when you need it.


  1. Big Cajun Man: Long term disability insurance is focused on replacing a fraction of your income if you become unable to work. This is different from long term care insurance, but you can see how they are related.

    The advice to understand what your insurance covers applies to both, though. It's not a good idea to think you are covered and find out when you need the insurance (and probably have a limited ability to fight for your interests) that you actually aren't covered.

    1. This is a reply to Big Cajun Man's question:

      "But this is not the same as Long Term disability insurance, correct?"