Once people start to learn about Long-Term Care Insurance (LTCI), they often have questions. Here, we answer those we hear most often.
What is the underwriting process for LTCI?
Whether you’re considering a traditional or asset-based LTCI plan, step 1 of the process is to answer a preliminary health questionnaire. This helps to determine which insurance companies will consider you, based on your health history. Depending on your health, you may qualify for coverage from one insurance company, but not from another.
Then, most insurance companies will conduct a phone interview with applicants. Some companies also require a paramed exam, as they do with life insurance. Exams can include blood work, urinalysis, height, weight, blood pressure screenings and, depending on age and family history, a cognitive screening.
Over the past five years, insurance companies have become more thorough in their underwriting, drawing on what they have learned from claim statistics regarding health conditions that lead to claims, claim duration, and more.
How does LTCI underwriting differ from life insurance underwriting?
With life insurance, most companies require a paramed exam if the requested benefit amount warrants it. This is not always the case with LTCI. For asset-based life and LTCI plans, many companies will start with a phone interview and then order records or paramed exams if needed.
Life insurance has more rating classes than LTCI, so in some cases, a company can issue a policy with a much higher premium to cover a greater health risk. (Generally speaking, an annuity with LTCI requires less stringent underwriting than traditional and asset-based life and LTCI.)
How could this affect LTCI premiums?
Traditional LTCI plans typically have 1-4 rating classes. The difference in cost between classes ranges from 15-50 percent, depending on the company. Some companies will limit a person’s benefits if they are in a higher rating class.
What happens if the insurance company that underwrote your policy exits the market or goes out of business?
If your company exits the business, your company is still obligated to service the policy as long as your premiums are paid. Your policy is a legal contract. If your company sells your policy to another company, they must also honor your policy. Insurance companies pay into state guarantee associations to protect against company insolvency. If your company goes out of business, your state will step in to guarantee a fixed amount of your policy.
Should I monitor my LTCI policy? Is it like monitoring a cash value life insurance policy?
You should review traditional policies every few years. This will allow you to see what your current daily/monthly benefit is as well as how the total benefit pool has grown over time. Asset-based plans come with an illustration that shows where your guaranteed benefits will be year-to-year. Many companies will send you an annual update to review each year.
Has the Affordable Care Act changed the LTC market, and if so, how?
The ACA doesn’t include LTC protection, so it hasn’t affected anyone’s coverage. What it has done is made people more aware that this is their responsibility, and not the government’s. As a result, more people are buying LTCI policies, and earlier. It’s helped lower the average policyholder’s age from the mid 70’s to age 57.
Can I use a IRS Tax Code Section 1035 tax-free exchange or another asset to defray the cost of LTC insurance premiums?
Yes. When the Pension Protection Act took effect in 2010, it allowed you to exchange an annuity or the cash value in a life insurance contract to pay for LTCI without recognizing an income tax liability on earnings accrued over the years from a tax-deferred annuity or the cash value from a life insurance policy when converted to an asset-based life or annuity policy with LTCI. If you would like help developing a long term care plan, we may be able to help. That’s just part of what we do.