Long Term Care Insurance: An Agent’s Primer

Posted on August 31, 2010.

Author: Frank N Darras

There's no doubt about it: Americans as a whole are getting older. Along with this rapid aging comes an increased awareness of and need for long term care insurance.

However, before you jump on the long term care bandwagon, you should be prepared. LTCI is heavily regulated, and you have a special duty of care to meet the needs of your elderly clients.

Know the policy provisions
Long term care insurance provides benefits for skilled, intermediate, or custodial care. Generally, skilled care must be prescribed by a doctor, given by a registered nurse, and made available 24 hours a day. Intermediate care refers to occasional nursing and rehabilitative care under the supervision of skilled medical personnel. Custodial care involves assistance with activities of daily living (ADL) that can be performed by someone without medical skills. It is usually provided in residential care homes or to individuals in their own homes.

The best policies pay for all three kinds of care, including care by non-professionals, such as family members and friends.

Benefits are paid on either an indemnity or reimbursement basis. A typical reimbursement policy will not pay more than the actual charge, regardless of the maximum daily benefit amount, with any unused portion carried over to the next period. Under an indemnity policy, the insured is paid the daily or monthly benefit regardless of the actual charges.

Benefits are generally triggered by the loss of two ADLs or a cognitive impairment. However, the definition of ADLs used in a particular long term care policy can make an enormous difference in terms of whether or not benefits will be paid. For example, some policies count bathing and dressing as two separate ADLs, while others combine bathing and dressing into a single ADL. Since many insureds first lose the ability to bathe and dress, the effect of combining bathing and dressing into one ADL is significant. In that case, benefits may not be paid until the ability to perform a third ADL is lost, which may never occur.

Important features to look for in long term care policies include: coverage for skilled, intermediate and custodial care, including home care; low ADL requirements to qualify for benefits; a no-prior-hospitalization requirement; inflation protection features; waiver of premium; guaranteed renewability; and coverage for Alzheimer's and other cognitive impairments.

Know the regulations

Recognizing the potential for fraud, the National Association of Insurance Commissioners has established model acts and regulations to help standardize long term care insurance. Most states have enacted similar statutes that regulate the sale and substance of LTCI policies. Understanding these statutes is essential for any agent who currently sells or is contemplating selling LTCI.

According to one statute, insurers must "develop and use suitability standards to determine whether the purchase or replacement of long term care insurance is appropriate for the needs of the applicant." These standards must take into consideration the applicant's ability to pay for the proposed coverage, the applicant's goals with respect to long term care, and the value, benefits, and costs of their existing insurance, if any, compared to the value, benefits, and costs of the proposed coverage. And agents must make "reasonable efforts to obtain the [necessary] information" in order to determine if the applicant meets the suitability standards by asking applicants to complete a long term care personal worksheet.

With regard to long term care insurance, "all insurers, brokers, agents, and others engaged in the business of insurance owe a policyholder or a prospective policyholder a duty of honesty, and a duty of good faith and fair dealing." The statute separately provides that the conduct of an agent "during the offer and sale of a policy previous to the purchase is relevant to any action alleging a breach of the duty of honesty, and a duty of good faith and fair dealing." Thus, the statutory duty of honesty, good faith, and fair dealing is owed to insureds and applicants and, unlike the common-law duty of good faith and fair dealing implicit in every insurance contract, is not dependent on the issuance of a policy.

Clearly, there is the potential for premium dollars in the long term care market. However, before you jump in with both feet, you must commit the time and effort necessary to learn the intricacies of the product, including the statutes that regulate the sale and substance of long term care insurance.

Frank N. Darras is a partner with the law firm of DarrasLaw and heads the firm's health, life, and disability department. He represents disabled policyholders and long term care insureds. Mr. Darras can be reached at 909-974-2121.

There's no doubt about it: Americans as a whole are getting older. Along with this rapid aging comes an increased awareness of and need for long term care insurance. However, before you jump on the long term care bandwagon, you should be prepared. LTCI is heavily regulated, and you have a special duty of care to meet the needs of your elderly clients.

Know the policy provisions

Long term care insurance provides benefits for skilled, intermediate, or custodial care. Generally, skilled care must be prescribed by a doctor, given by a registered nurse, and made available 24 hours a day. Intermediate care refers to occasional nursing and rehabilitative care under the supervision of skilled medical personnel. Custodial care involves assistance with activities of daily living (ADL) that can be performed by someone without medical skills. It is usually provided in residential care homes or to individuals in their own homes.

The best policies pay for all three kinds of care, including care by non-professionals, such as family members and friends.

Benefits are paid on either an indemnity or reimbursement basis. A typical reimbursement policy will not pay more than the actual charge, regardless of the maximum daily benefit amount, with any unused portion carried over to the next period. Under an indemnity policy, the insured is paid the daily or monthly benefit regardless of the actual charges.

Benefits are generally triggered by the loss of two ADLs or a cognitive impairment. However, the definition of ADLs used in a particular long term care policy can make an enormous difference in terms of whether or not benefits will be paid. For example, some policies count bathing and dressing as two separate ADLs, while others combine bathing and dressing into a single ADL. Since many insureds first lose the ability to bathe and dress, the effect of combining bathing and dressing into one ADL is significant. In that case, benefits may not be paid until the ability to perform a third ADL is lost, which may never occur.

Important features to look for in long term care policies include: coverage for skilled, intermediate and custodial care, including home care; low ADL requirements to qualify for benefits; a no-prior-hospitalization requirement; inflation protection features; waiver of premium; guaranteed renewability; and coverage for Alzheimer's and other cognitive impairments.

Know the regulations

Recognizing the potential for fraud, the National Association of Insurance Commissioners has established model acts and regulations to help standardize long term care insurance. Most states have enacted similar statutes that regulate the sale and substance of LTCI policies. Understanding these statutes is essential for any agent who currently sells or is contemplating selling LTCI.

According to one statute, insurers must "develop and use suitability standards to determine whether the purchase or replacement of long term care insurance is appropriate for the needs of the applicant." These standards must take into consideration the applicant's ability to pay for the proposed coverage, the applicant's goals with respect to long term care, and the value, benefits, and costs of their existing insurance, if any, compared to the value, benefits, and costs of the proposed coverage. And agents must make "reasonable efforts to obtain the [necessary] information" in order to determine if the applicant meets the suitability standards by asking applicants to complete a long term care personal worksheet.

With regard to long term care insurance, "all insurers, brokers, agents, and others engaged in the business of insurance owe a policyholder or a prospective policyholder a duty of honesty, and a duty of good faith and fair dealing." The statute separately provides that the conduct of an agent "during the offer and sale of a policy previous to the purchase is relevant to any action alleging a breach of the duty of honesty, and a duty of good faith and fair dealing." Thus, the statutory duty of honesty, good faith, and fair dealing is owed to insureds and applicants and, unlike the common-law duty of good faith and fair dealing implicit in every insurance contract, is not dependent on the issuance of a policy.

Clearly, there is the potential for premium dollars in the long term care market. However, before you jump in with both feet, you must commit the time and effort necessary to learn the intricacies of the product, including the statutes that regulate the sale and substance of long term care insurance.

Frank N. Darras is a partner with the law firm of DarrasLaw and heads the firm's health, life, and disability department. He represents disabled policyholders and long term care insureds. Mr. Darras can be reached at 909-974-2121.